The pound vs dollar rate has been choppy so far this week, moving back and forth between the 1.38 and 1.39 benchmarks. Despite Prime Minister Boris Johnson’s “competence and integrity” being called into question over the past few days, the pound has held its ground – indicating underlying strength for the UK currency.
The pair’s performance has been largely muted by two factors: a dearth of data from the UK economy and anticipation of the Federal Open market Committee’s two-day meeting, which ended yesterday – with expectations high that the Fed would maintain its accommodative stance, while also remaining modestly optimistic over the economic outlook.
The dollar went on the defensive in the wake of the central bank’s meeting on Wednesday, following a decidedly dovish outlook from the Fed, which stamped out speculation about an early tapering of asset buying. Fed Chair Jerome Powell said it was “not time yet” to start talking about it, and employment was still a long way off where it needed to be to trigger such action.
The Fed held its key interest rate near zero and said it plans to continue supporting the economic recovery. Members of the Federal Open Market Committee voted unanimously to maintain the central bank’s policies until the economy recovers further from the impact of the pandemic. Market analysts view low interest rates amid an improving US and global economy as perfect conditions for the dollar to continue decreasing in value.
Fed officials acknowledged recent progress in growth and employment in a statement released after the conclusion of its two-day policy meeting: “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened,”
The Fed’s dovish outlook weighed heavily on the dollar, causing the pound to dollar rate to jump to a nine-day high of 1.397 overnight.
A slew of notable data is scheduled for release from the US today: initial jobless claims, gross domestic product, personal consumption expenditures prices, and pending home sales. The deluge of data continues tomorrow, including personal income and personal spending figures.
The second – and final – data release from the UK economy this week hits the headlines tomorrow morning: the Nationwide housing prices report, which shows the value of the houses prices in the UK and highlights current movements in the housing market, is forecast to slow from 5.7% in March to 5% in April – a potentially negative outcome for the pound.