The pound cruised to a three-month high against the dollar yesterday, helped on its way by strong jobs data from the Office for National Statistics (ONS), which showed Britain’s unemployment rate unexpectedly fell again to 4.8% between January and March – when the UK was under strict lockdown rules. This caused the pound vs dollar rate to rise above the 1.42 resistance level for the first time since February.
The ONS data showed the claimant count – another measure of unemployment in the UK – fell month-on-month to 2.6 million in April. The figures also showed average pay (excluding bonuses) jumped 4.6% in the three months to March. This raised hopes that Britain would experience an exceptionally strong economic recovery from the Covid-19 pandemic, helped by the rapid vaccine rollout.
Data released by the ONS this morning revealed that the UK’s rate of inflation doubled in April, signalling the start of a surge in prices that will increase bets on when the Bank of England might start relaxing its stimulus programme. Consumer prices jumped 1.5% from the same point last year following a 0.7% uptick in March – the reading was in line with economists’ forecast. The upward movement was mainly fuelled by a rise in domestic energy prices and clothing. And with the UK economy back up and running, consumers can start splashing the cash they amassed over lockdown, leaving the central bank confident that inflation will exceed its 2% target later this year.
Fed rate hike fears fade
Dollar weakness provided additional thrust to the pair’s surge higher yesterday. The US currency’s woes were extended by increased risk appetite, which attracted investors away from the safe-haven, and anxiety ahead of today’s release of minutes from the Fed’s April policy meeting. Treasury yields continued to stall amid growing expectations that central bank policymakers will refrain from hiking interest rates for the time being, despite concerning inflation spikes.
Disappointing US construction data also weighed on the dollar yesterday. Homebuilding fell more than expected last month, probably dragged lower by soaring prices for raw materials. Housing starts slid 9.5% to a seasonally adjusted annual rate of 1.569 million units in April. However, there was cause for optimism, with permits for future homebuilding rising 0.3% to a rate of 1.760 million units. They surged 60.9% compared to 12 months earlier, and are exceeding starts, which points towards a resurgence in homebuilding in the coming months.
The GfK Consumer Confidence Index for May – released tomorrow evening – is the next release of note from the UK economy.
Federal Reserve minutes, from an April meeting held before the inflation data surprise last week, are due today and could provide clues on the central bank’s thinking.