The pound to dollar rate accelerated above the 1.38 resistance level on Friday – settling there for the weekend, before extending its gains this morning. The UK currency was more of a passenger than a driver of the pair’s sudden jump higher, following a week that saw it get off to a good start when large swathes of the UK economy reopened on Monday, before coming under pressure.
Deprived of notable data that could underscore the nation’s economic recovery, the UK currency was blindsided on Tuesday by the sudden announcement that the Bank of England’s chief economist Andy Haldane – one of the more hawkish members of its Monetary Policy Committee – will be stepping down from his role in June. The unexpected news raised concerns amongst investors that the central bank could be more dovish in the future.
Additional pressure was applied on the pound when reports emerged that the Oxford AstraZeneca vaccine had been linked with rare blood clots. The AstraZeneca jab has formed the backbone of the UK’s vaccination drive and investors fear that any restriction of its use could delay the government’s roadmap out of lockdown.
Dollar Comes Under Sustained Pressure
The pound’s problems were outweighed by those facing the dollar last week – sending the . The US currency was initially undermined by comments from Federal Reserve Chair Jerome Powell, who suggested that the economy is at an “inflection point” and that despite positive data showing improvement, further recovery will depend on strong monetary policy support from the central bank.
Despite the US consumer price index printing above expectations, with inflation surging to 2.6% in March, further comments from Mr Powell weighed on the dollar. The Fed Chair outlined that the central bank would like inflation to moderately exceed its 2% target for a period and suggested that interest rates would remain unchanged until 2023.
The dollar firmed on Thursday, but only briefly, after the latest US retail sales and jobless claims prints improved on forecasts. However, this was quickly followed by additional selling pressure caused by a prevailing risk-on mood and falling US Treasury yields, which combined to reduce demand for the dollar.
This was compounded by the Michigan consumer sentiment index, which despite improving from 84.9 to 86.5, fell short of forecasts that sentiment would reach a pandemic high of 89.6 in April.
Tomorrow’s employment report from the Office for National Statistics will show the UK claimant count, unemployment rate and average earnings including bonus.
A quiet start to the week in the US economic calendar means Thursday’s initial jobless claims figure and Chicago Fed national activity index are the first releases of note.
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