Pound to Dollar Rate Helped Higher by Tame US Inflation Report

The pound started the week by moving sideways against the dollar, before gaining enough traction to send it to a 10-day high – rising to the 1.38 level for the first time since 16 July.

The pound to dollar rate rose back above the 1.39 benchmark yesterday, maintaining its steady rise into the mid-range this morning. Sending the pound higher were reports that daily Covid-19 infection rates are continuing to fall in the UK, with cases down by 625 compared to last week to 5,766. Consequently, UK hospitalisations are also down by 3,362 compared to last week, increasing investor confidence about the gradual reopening of the economy over the next few months.

A barren day in the UK economic calendar yesterday meant this morning’s Royal Institution of Chartered Surveyors (RICS) Housing Price Balance survey – a measure of the percentage of surveyors reporting a house price increase in their area – was the first release since Tuesday. The research showed that the UK housing market strengthened in February, ahead of the chancellor’s decision to extend the stamp duty holiday – and despite lockdown.

According to the RICS survey, the net balance for house price growth was 52% last month compared to 49% in January – exceeding forecasts of 45%.

US Core Inflation Rises Less Than Estimates

Reports that the US consumer price index (CPI) – a key measure of inflation – rose less than expected in February weighed on the dollar yesterday. A decline in the cost of used vehicles, clothing and transportation services from a month earlier were responsible for the below-par performance, suggesting broader inflationary pressures remain tame.

The Labor Department report released on Wednesday showed that the core CPI – excluding volatile food and energy costs – increased 0.1% from January and 1.3% year on year. The overall CPI rose 0.4% from January and 1.7% from a year earlier.

Treasury Department figures released on Wednesday showed the federal budget deficit topped $1 trillion for the first five months of the fiscal year, as the US attempts to combat the Covid-19 pandemic. The shortfall of $1.04 trillion from October of last year through February was far higher than the $624 billion deficit the nation amassed in the first part of 2020, before the pandemic set in.

Looking Ahead

The pound must wait until tomorrow for a slew of data releases, including manufacturing and industrial production figures and the latest gross domestic product reading, which is forecast to fall – a negative outcome for the pound.

Employment data dominates the economic schedule in the US today, with continuing jobless claims and initial jobless claims both forecast to fall – positive outcomes for the dollar. Get in touch using the form below to discuss these factors in further detail and be kept up to date with the latest market movements.