A choppy day for the pound vs dollar rate saw it fluctuate between 1.38 and 1.39 on Wednesday, as anticipation of today’s Bank of England (BoE) policy decision suppressed investor appetite for the UK currency. Any hopes that further evidence of the nation’s economic rebound could stoke interest in the pound were dashed by a dearth of data from the UK.
The pound received some accommodating news yesterday when polling data indicated that Nicola Sturgeon’s Scottish National Party (SNP) is set to miss out on the overall majority she believes would support a push for independence. The First Minister is determined to use any majority to demand Boris Johnson acquiesces to a referendum on the issue. However, her plan was dealt a blow by the publication of a Savanta ComRes survey, which indicated support for the SNP has waned – both in the constituency vote (down three points to 42) and the list vote (down two points to 34).
Soft data keeps dollar in check
Upbeat news for the dollar appeared to cancel out the impact of the Scottish polling report on the pound to dollar rate, causing the pair to shuffle sideways. Speculation about higher US interest rates and a sell-off in tech stocks poured cold water on risk sentiment, giving the safe-haven currency a boost. The mood was partly triggered by comments from Treasury Secretary Janet Yellen, who believes that rate hikes may be required to stop the economy from overheating.
Two pieces of data stuck out from a raft of releases in the US yesterday: the ADP employment change reading and the ISM services purchasing managers’ index (PMI) – both of which were softer-than-expected. Private sector employment increased by 742,000 jobs from March to April but fell short of the 800,000 jobs forecast by economists. The US services sector continued to grow at an energetic pace last month, with the ISM PMI dropping from an all-time high of 63.7 for March to 62.7 in April, weighed down by reports of slower deliveries by suppliers.
The UK’s economic recovery from the Covid-19 pandemic has been anchored by the nation’s rapid vaccination programme. With more than 50 million doses administered already and signs of positive economic performance, all eyes will be on the BoE today following the latest meeting of its Monetary Policy Committee. Investors will be watching closely for clues of when the BoE will become more hawkish. It’s generally accepted interest rates will remain unchanged, but the central bank could significantly revise up its GDP growth forecast for the UK economy in 2021.
Over in the US, employment figures could influence sentiment towards the dollar ahead of Friday’s headline nonfarm payrolls release.