The pound sunk to a fresh six-month low against the dollar on Tuesday. The UK currency’s woes this week have been provoked by a buoyant dollar and investor concerns about the UK’s relaxing of Covid-19 restrictions, causing it to fall to the 1.35 level for the first time since January
On Monday, the government moved England to step 4 of its roadmap out of lockdown, meaning it was finally in a position to remove all legal limits on social contact. Consequently, nightclubs could open for the first time in more than a year and rules around mask-wearing and social distancing were ended. The government’s intervention was marred by surging infections, with new cases of Covid-19 hitting 50,000 a day in the UK.
The pound’s winning streak so far this year has been prompted by the UK’s rapid vaccine programme. However, it has hit a speed bump this week as Covid concerns intensified amid the economic reopening.
UK public sector borrowing declined last month compared with the same period 12 months earlier, as the easing of Covid restrictions supported tax revenues and cut government spending. The amount of new debt held by the UK government was estimated at £22.8 billion in June – £5.5 billion less than in the same month last year – the Office for National Statistics said on Wednesday morning.
Dollar remains supported
The risk-off sentiment in global currency markets continued to drive the dollar higher against the pound on Tuesday morning – before it took a breather from its advance later in the day. Perceived to be a safe-haven currency, the dollar has proved popular with investors of late, who fear the fast-spreading Delta variant of Covid-19 – now the dominant strain worldwide – could hinder the global economic recovery.
Homebuilding in the US increased more than expected last month. According to the Commerce Department, Housing Starts jumped 6.3% to a seasonally adjusted annual rate of 1.643 million units in June – surpassing economists forecast that starts would rise to a rate of 1.590 million units.
However, the Commerce Department report also showed that permits for future homebuilding dropped to an eight-month low, falling 5.1% to a rate of 1.598 million units in June. The move lower reflects uncertainty triggered by expensive materials together with shortages in labour and land.
Investors in the pound and dollar must wait until tomorrow for the next influential data sets to be released from either economy, when the UK GfK Consumer Confidence Index for July and US Initial Jobless Claims for the week ended 16 July hit the headlines.