The pound appears to have lost its fizz against the dollar, although it did manage to regain some losses yesterday. The partial reopening of the economy on Monday had effectively been priced in during the big sell-off in UK government bonds, which lifted yields. Higher bond yields are typically favourable for the pound, as it often inspires investors to move money to areas where they can earn higher returns.
Without any notable data left in the UK calendar this week to underscore the nation’s economic recovery, the pound is looking for impetus from other avenues – and the vaccination drive, together with the roadmap out of lockdown, remain the most influential factors.
US Interest Rates Set To Remain Near Zero
Federal Reserve Chairman Jerome Powell said yesterday that the central bank will begin to ease the pace of its bond purchases – a tactic used since last June to hold down long-term borrowing costs – “well before” raising interest rates. The Fed believes the economy must make “substantial further progress” toward its goals of maximum employment and 2% inflation before it slows the pace of those purchases.
Addressing attendees of a virtual event organised by the Economic Club of Washington D.C, Mr Powell said: “We will taper asset purchases when we’ve made substantial further progress toward our goals, from last December when we announced that guidance,” adding “That would in all likelihood be before—well before—the time we consider raising interest rates.”
The Fed has said interest rates will remain near zero until there’s proof the labour market has returned to full employment and inflation rises to 2% – and is forecast to exceed that level for some time. Mr Powell believes it is extremely unlikely the Fed will increase the cost of borrowing this year and highlighted that most central-bank officials see rates remaining near zero into 2023.
According to the Federal Reserve’s Beige Book survey of the economy, which covers the six weeks leading up to 5 April, “National economic activity accelerated to a moderate pace from late February to early April,” This upsurge was triggered by growing consumer confidence as increased vaccinations and strong fiscal support encouraged them to spend more on travel and other items.
The dollar dropped slightly yesterday as Treasury yields held below recent highs, after tumbling on Tuesday when the US consumer price index showed that underlying inflation was not surging as some feared, allowing risk assets to rise. By this morning, the pound vs dollar rate remained in 1.37 territory.
The only data scheduled for release in the UK today is the Bank of England Credit Conditions Survey for Q1.
A slew of data from the US today includes Retail Sales, the Philadelphia Fed Manufacturing Survey, the Retail Sales Control Group, and Initial Jobless Claims.
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