The pound began the final week of the month on the front foot against the dollar, advancing back above the 1.39 level. The UK economic calendar is sparse this week, meaning the pound to dollar rate will be influenced by other factors – not least US data, which is in plentiful supply.
The first evidence of this was triggered by speculation surrounding the US Federal Reserve’s latest monetary policy meeting this week, during which Fed Chair Jerome Powell is expected to sidestep talk of tapering bond purchases – causing the dollar to nurse early losses against the pound. Mr Powell will have to field questions over the prospect of an improving labour market and rising Covid-19 vaccinations justifying a withdrawal of monetary easing. Most market analysts expect him to suggest such talk is premature, which is likely to weigh on Treasury yields and the dollar.
The first in a long line of influential data releases from the US this week showed orders for long-lasting goods recommenced growth last month, as the US recovery encouraged manufacturing demand that has been building since last year.
New orders for durable goods – goods designed to last for three years or more, such as motor vehicles and appliances – increased 0.5% to a seasonally adjusted $256.3 billion in March from February, the Commerce Department said Monday. Low business and retail inventories have increased demand for manufacturers for much of the past year, leading orders to rise 10 out of the last 11 months. However, supply-chain constraints continue to inhibit production and delay shipments.
Overall, the durable goods sector is experiencing rapid growth as it recovers from sharp declines last spring when the Covid-19 pandemic first emerged.
Market analysts believe the dollar could continue to trend lower this week as the gathering momentum in the world economy increases risk appetite – and reduces the US currency’s safe-haven appeal. They also expect the Fed’s policy meeting to offer little solace for the dollar. The US economy is a long way off the ‘substantial further progress’ threshold the Fed requires to taper its asset purchases.
Before the central bank’s monetary policy statement on Wednesday, several notable economic releases are scheduled for release from the US today: the housing price index from the Federal Housing Finance Agency, the S&P/Case-Shiller home price indices from Standard & Poor’s, and the consumer confidence reading for April.
The first data from the UK economy this week is the British Retail Consortium shop price index, which is released this evening.