The pound to dollar rate continued its descent from Tuesday’s two-week high yesterday – dropping to 1.37. Having emptied its tank on the back of the UK’s vaccination drive and reports that the economy’s roadmap out of lockdown is set to continue as planned, the UK currency hit the buffers. Standing in its way were growing concerns about the vaccine rollout after it was confirmed all adults under 30 in the UK are to be offered an alternative to the AstraZeneca jab – a course of action that could put the brakes on the rapid programme.
A dearth of economic data in the UK also hampered its progress. The first release in almost a week hit the headlines yesterday: the UK’s IHS Markit/CIPS composite Purchasing Managers’ Index (PMI) – a measure of Britain’s manufacturing and service sector output – jumped to 56.4 points from 49.6 in February. While this marked the first expansion – a reading above 50 – in three months, the final reading was lower than flash estimates of 56.6. A surge in new orders and the creation of new jobs at a rapid pace boosted business confidence in March.
This optimism was echoed by the International Monetary Fund’s (IMF) higher UK growth forecasts. Yesterday the IMF reported that it expects the UK economy to grow by 5.3% in 2021 and by 5.1% in 2022 – an upward revision of 0.8% and 0.1% respectively since January.
Federal Reserve Adopts Cautious Outlook
President Biden’s $1.9 trillion stimulus package will boost the US economy and drive rapid global growth this year: that is the view of the IMF following its latest meeting of members, which is taking place throughout this week. According to the organisation of 190 countries, the US economy will exceed its pre-pandemic size with growth reaching 6.4% this year – up 1.3% from the IMF’s forecast in January. The rebound is expected to help the global economy expand 6% in 2021 – an upgrade of 0.5%.
The Federal Open Market Committee released the minutes from its March 16-17 meeting yesterday. Officials from the central bank indicated that easy policy would remain in place until it produces stronger employment and inflation – and will not be adjusted based purely on forecasts. The summary document indicated that expectations the economy will gain substantially must be backed up by actual progress before ultra-easy policy is adjusted.
The Fed’s cautious outlook triggered a drop in Treasury yields after the minutes offered no new catalysts to dictate market direction. Despite weighing on the US currency, the pressure on the pound from the latest developments in the UK’s vaccination rollout proved greater yesterday.
Today’s UK Markit Construction PMI for March is forecast to move further into expansion territory. The Royal Institution of Chartered Surveyors Housing Price Balance for March is expected to grow by 2%.
Employment data is top of the agenda in the US today, with the release of two key figures by the US Department of Labour: Continuing Jobless Claims and Initial Jobless Claims.
You an get in touch using the form below to discuss thee factors in further detail ahead of the data release coming out of the US, to see how your upcoming currency exchange could be impacted.