A turgid start to the week saw rangebound conditions keep the pound to dollar rate firmly in 1.38 territory. A barren day in the UK economic calendar on Monday was partly to blame for the lack of market activity. The subdued performance yesterday followed a sharp drop in value for the pair on Friday, after the Bank of England’s latest meeting minutes – which cooled rate hike expectations – and rising US Treasury yields combined to push it lower.
The Office for National Statistics revealed this morning that the UK’s unemployment rate has unexpectedly dipped to 5% in the three months to January, down 0.1% from December. Economists had forecast the rate to tick up to 5.2%. The encouraging reading shows that the UK labour market is demonstrating signs of resilience amid the ongoing pandemic.
Fed Actively Explores Fully Digital Dollar
A lack of support for the dollar on Monday also contributed to the pair’s sideways movement. The Federal Reserve Bank of Chicago’s National Activity Index – a monthly index designed to gauge overall economic activity and related inflationary pressure – fell to -1.09 last month from 0.75 (revised from 0.66) in January – missing the market expectation of 0.21%.
Existing US home sales fell sharply in February, as supply dipped by the largest amount ever. Closed sales dropped a larger-than-expected 6.6% last month compared with January, according to the National Association of Realtors. Despite entering the traditionally active spring housing season, homeowners are listing their properties at a slower pace than normal for the time of year. Consequently, the supply of homes for sale fell 29.5% year over year to 1.03 million – the largest annual decline on record.
Speaking at an event held by the Bank for International Settlements on central bank digital innovation yesterday, Federal Reserve Chair Jerome Powell said that the Fed is exploring a fully digital dollar. However, he stressed that: “we would not proceed with this without support from Congress, and I think that would ideally come in the form of an authorizing law, rather than us trying to interpret our law to enable this”.
Jerome Powell will testify before a congressional committee today on the Coronavirus Aid, Relief, and Economic Security Act, together with Treasury Secretary Yellen. The speech could trigger some dollar volatility, especially if he addresses higher bond yields and inflation. Powell will then testify before a Senate committee tomorrow. New Homes Sales figures are also scheduled for release from the US today.
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