The big day arrived for the pound and it was sent on a mini rollercoaster ride, zigzagging between 1.38 and 1.39 in the wake of the latest Bank of England (BoE) meeting. An initial drop lower was triggered by reports that the BoE’s Monetary Policy Committee had kept its interest rate and the end-of-year target size of its bond-buying programme on hold. It then rose again as the central bank highlighted a slight slowdown in its pace of bond-buying to support the economy and made a bullish prediction for the UK recovery.
The BoE is expecting pent-up consumer spending to drive an economic recovery to remember, funded by the financial reserves savers have amassed during the pandemic. In February, the BoE estimated that 5% of these excess savings would be spent, which has now been upgraded to 10%. In doing so it also revised up its growth forecast for 2021 from 5% made three months to 7.25%, which would represent the economy’s highest level in 80 years – but stated that inflation would remain in check even as the recovery picked up pace.
The revised growth estimate pours cold water on the chances of a negative interest rate being set this year, instead suggesting that the cost of borrowing will begin to rise in 2022.
Risk-on mood weighs on dollar
The dollar came under pressure from improving global market risk appetite yesterday. While on the domestic front it was reported that fewer Americans filed new claims for unemployment benefits last week, falling below 500,000 for the first since the pandemic started over a year ago. The news is a strong indication that the US labour market recovery has entered a new phase as the economic recovery gathers momentum. These figures were underpinned by additional data showing that employers in the US announced the fewest job cuts in nearly 21 years last month. However, the labour market is not in the clear just yet, with over 16 million people still collecting unemployment benefits.
By this morning, the pound vs dollar rate had slipped back to 1.38.
The only piece of data scheduled for release from the UK economy today is the Markit Construction PMI for April. Investors will be closely monitoring the results of yesterday’s UK local elections for any signs that recent scandals surrounding Boris Johnson have dented voter confidence in the PM. Counting begins in the Scottish Parliament elections this morning, with the SNP determined to use any majority to demand Boris Johnson accedes to a referendum on the issue of independence.
Today’s highly anticipated nonfarm payrolls report from the US economy is forecast to rise to 978,000 jobs last month from 916,000 in March. That would leave employment about 7.5 million jobs below its peak in February 2020. Also scheduled for release from the US today are Average Hourly Earnings, the Labour Force Participation Rate, and the Unemployment Rate.