Pound to Dollar Rate Buoyed by UK GDP Figures

Pound to Dollar Rate Drops to 1.36

The pound sprung to life on Wednesday following a brief period of stagnation. Sending it higher were reports that the UK economy bounced back more strongly than first thought in the last six months of 2020. The figures released by the Office for National Statistics (ONS) yesterday morning showed that UK GDP rose by 16.9% and 1.3% – up from an initial estimate of 1% growth – in the third and fourth quarters respectively.

The GDP data means the UK economy shrank by 9.8% in 2020 – a fraction less than an initial estimate of a 9.9% slump. Last year marked the worst annual drop in GDP in 300 years for the Covid ravaged UK economy. What’s more, the economic damage felt in the UK outstripped the impact in other developed economies.

The ONS also reported that Britain’s current account deficit – a net flow of current transactions, including goods, services, and interest payments into and out of the UK – expanded to £26.3 billion in Q4, almost double the shortfall in Q3. The loss was triggered by a rush to import goods to the UK before the trade relationship with the EU changed on 1 January.

Having briefly shot back above the 1.38 benchmark yesterday, the pound vs dollar rate had settled back in the 1.37 mid-range by this morning.

Biden Unveils $2tn Infrastructure Investment Plan

The dollar initially softened after Treasury yields cooled on Wednesday. The bond sell-off was suppressed by details of President Joe Biden’s infrastructure plan, which aims to raise taxes to fund $2+ trillion expenditure. According to Mr Biden, the “once-in-a-generation” investment in infrastructure will transform the Covid ravaged domestic economy into the “strongest, most resilient, innovative economy in the world”.

Private sector employment increased by 517,000 jobs from February to March, against an estimate of 550,000 jobs, according to the ADP National Employment Report – a measure of the change in total nonfarm private employment each month on a seasonally-adjusted basis.

Less encouraging was the latest US Pending Home Sales Index from the National Association of Realtors, which showed contracts to buy previously owned homes fell for a second straight month in February. This points towards a cooling in the housing market in the coming months, as accelerating prices amid tight supply and rising mortgage rates reduce affordability. The index, which is based on contracts signed last month, slumped 10.6% to 110.3, with contracts falling across all four regions.

Looking Ahead

The Markit Manufacturing PMI for March is scheduled for release from the UK today – and is forecast to hold steady.

The pick of a raft of data from the US today is the ISM Manufacturing PMI for March, which is expected to tick higher – a potentially positive outcome for the dollar. Tomorrow’s influential US nonfarm payrolls report is forecast to add 639,000 jobs in March – which would represent the highest total since last October. The unemployment rate is predicted to fall to 6% from 6.2% in February.

Use the form below to get in touch and discuss how these factors are likely to impact the pound to dollar rate ahead of your currency exchange.