Having closed in on a 13-day high, the pause button was pressed on the pound’s surge against the dollar on Wednesday morning ahead of the minutes from the US Federal Reserve’s two-day meeting – with investors waiting for clues on the timing of any tapering of its bond-buying programme amid rising US inflation.
The UK currency’s initial push higher reflected growing optimism that the Bank of England could be less dovish than expected when it meets next week after data continued to show a steady decline in Covid-19 infections. However, Prime Minister Boris Johnson tempered investor hopes by warning it was too early to determine whether there was a definite trend.
Several economic indicators hit the headlines before the Fed’s big news. First up overnight on Tuesday was the British Retail Consortium Shop Price Index for July, which declined 1.2% on an annual basis. This represented a bigger drop than both June and May as British retailers – most notably supermarkets – continued to reduce their prices in the battle for customers.
Annual UK house price growth eased off in July as the clamour to move home before the stamp duty holiday ended began to diminish. However, it remained in double digits as demand from buyers persisted. The Nationwide House Price Index fell to 10.5% this month from 13.4% in June, while seasonally adjusted prices dropped 0.5% month on month, bringing the average home price to £244,229.
No clues on taper timing from Fed
In the end, the Federal Reserve didn’t give any clues about the potential timeline for tapering its purchases of government bonds, despite saying the economic recovery is on track. After its latest policy meeting ended on Wednesday, the central bank said the economy remained robust amid a rise in Covid-19 infections, and that accelerating inflation continued to be caused by “transitory factors.”
During a news conference, Fed Chairman Jerome Powell said it was not yet time to consider raising the cost of borrowing, and that while the central bank has begun debating plans to taper its bond purchases, the timing will be dictated by upcoming data.
The contents of the Fed’s meeting minutes caused the pound vs dollar rate to jump to 1.39377 this morning. This represented its highest level in over a month as the US currency was weighed down by the latest insistence from Mr Powell that rate increases aren’t on the horizon.
Four data sets are scheduled for release from the UK economy today: Net Lending to Individuals, Consumer Credit, M4 Money Supply, and Mortgage Approvals – none of which are considered influential on the market.
Several notable economic indicators are in the US economic calendar today: Core Personal Consumption Expenditures, Gross Domestic Product, Initial Jobless Claims, and Pending Home Sales.