The pound briefly touched 1.42 against the dollar yesterday morning before retreating. The first – and only – economic data release from the UK economy this week hit the headlines on Tuesday when the level of Government borrowing in April was revealed. Figures from the Office for National Statistics showed that public sector borrowing hit £31.7 billion last month – down £15.6 billion on the same period 12 months ago when UK national accounts first felt the full blow from the pandemic – as the easing of lockdown restrictions began to regenerate the economy. This represented the first annual decline since the start of the pandemic, although current levels of borrowing remain extortionate by normal standards.
Following the data release, finance minister Rishi Sunak said: “At the Budget, I set out the steps we are taking to keep the public finances on a sustainable footing by bringing debt under control over the medium term,”
By this morning, the pound vs dollar rate was trading in the 1.41 mid-range.
Softer-than-expected data weighs on dollar
The dollar remained under pressure yesterday as softer-than-expected US economic data and further rhetoric from Federal Reserve officials that monetary policy will stay on hold eased investor concerns about inflation pushing interest rates higher.
Sales of new single-family homes declined in the US last month as prices were forced higher by the compacted supply of houses, which is threatening to hold back the housing market’s momentum. Sales of new homes fell 5.9% to a seasonally adjusted annual rate of 863,000 units in April, the Commerce Department revealed on Tuesday. Economists had forecast new home sales would increase at a rate of 950,000 units.
Consumer confidence in the US faded slightly in May as concerns about rising inflation and diminishing government financial support applied pressure. However, the reading hovered just below April’s 14-month high with optimism over jobs remaining high.
The Conference Board survey indicated the pace of economic growth remained strong in Q2, although the recovery from the pandemic-fuelled recession is uneven. The consumer confidence index dropped to 117.2 in May from 117.5 the previous month – its highest level since February 2020. Economists had forecast that the index would increase to a fresh high of 119.2.
A lack of notable economic releases today means investor attention will turn to the crucial US core consumer price data tomorrow. This provides an average of the amount of money US consumers spend in a month on durable goods, consumer products, and services – and is considered an important gauge of inflation.