The pound vs dollar rate held firm above 1.41 yesterday morning, following the release of the latest Gross Domestic Product data by the Office for National Statistics (ONS), which beat market expectations. The UK economy grew by 2.1% in March, beating economist forecasts of a dip from 1.5% in February to 1%. This set the scene for what is expected to be a sharp economic rebound in the coming months after the Covid-19 inflicted slump last year.
While the data was welcomed by investors in the pound – helping to support market optimism for a strong economic recovery in the UK – its impact was limited because it represents a period when stricter lockdown restrictions were enforced.
The pound to dollar rate had risen to a two-month high on Monday under the influence of dollar weakness, market relief over the election results in Scotland, the lockdown easing roadmap, and the Bank of England upgrading its economic growth forecast. By yesterday afternoon, however, the pair had dipped back to the 1.40 level.
Separate trade figures released yesterday by the ONS showed the UK imported more goods from non-EU countries than EU countries during Q1 for the first time since records began in 1997.
US reports surge in inflation
Dollar weakness has been a common theme of late and yesterday was no different after inflation data from the Labor Department showed a surge in consumer prices last month. US consumer prices increased more than expected in April amid growing supply constraints following the reopening of the economy. The consumer price index (CPI) increased 0.8% last month, surpassing the 0.2% forecast by economists, while the core CPI – which excludes volatile food and energy components – rose 0.9% against the 0.3% forecast.
US Federal Reserve officials have repeated promises of patience from the central bank this week. On Tuesday St. Louis Federal Reserve President James Bullard said inflation could remain as high as 2.5% next year, while Fed Governor Lael Brainard believes soft employment figures last week shows the economic recovery has a long road ahead.
The remaining data this week comes exclusively from the US economy. Today sees the release of the Producer Price Index (excluding food and energy) and Initial Jobless Claims for the week ending 7 May, which are forecast to decline. On Friday, a raft of data hits the headlines, including Retail Sales for April and the Michigan Consumer Sentiment Index for May.