Pound to Dollar Rate Buoyed by Drop in UK Covid Cases

Pound to Dollar Rate Buoyed by Drop in UK Covid Cases

The pound shot up to within touching distance of 1.39 against the dollar on Tuesday after it was revealed that cases of Covid-19 in Britain have dropped for the sixth consecutive day, just eight days after ‘Freedom Day’. The US currency was feeling the heat from mounting tension ahead of the release of minutes from the Federal Reserve’s July meeting today. Last month, Fed Chair Jerome Powell said that the debate about tapering asset purchasing had begun, and the central bank signalled two rate hikes in 2023 – surprising market participants in the process.

Anticipation of the meeting of US monetary policymakers overshadowed firm data from the US economy on Tuesday.

New orders for key US-made capital goods increased last month against a backdrop of supply constraints that restricted production at some factories. The solid figures suggest business spending on equipment could remain robust beyond Q2. Orders for non-defence capital goods (excluding aircraft) – a measure of the cost of orders received by manufacturers for durable goods i.e. goods that are expected to last for three years or more – rose 0.5% in June, the Commerce Department said on Tuesday. However, economists polled had forecast core capital goods orders to advance 0.7%.

Morale amongst US shoppers hovered at a 17-month high this month, indicating the US economy maintained its strong pace of growth at the start of Q3. The US Consumer Confidence Index read 129.1 in July – the highest level since February 2020 – meaning it was little changed from the previous month the Conference Board said on Tuesday. Economists had expected the index to fall to 123.9.

The pace of US house price gains increased further in May, with the annual rate accelerating at its fastest in over 30 years the results of a closely watched survey showed on Tuesday. The S&P Case Shiller National House Price Index jumped by 1.7% month-on-month and by 16.6% year-on-year in seasonally adjusted terms.

UK shop prices fall again

The first data set from the UK economy this week showed that British retailers reduced their prices by more in July than June as supermarkets continue to battle it out for customers. This provides some succour for shoppers as broader inflation picks up pace.

On Wednesday evening, the British Retail Consortium revealed that its Shop Price Index for July declined by 1.2% on an annual basis. This represented a bigger drop than both June and May when the index fell 0.7% and 0.6% respectively.

Looking ahead

The minutes from the US Federal Reserve’s two-day monetary policy meeting are released today, with investors poised to pour over their contents for clues on the timing of stimulus tapering.