The pound took a breather against the dollar on Thursday, consolidating gains fuelled by a risk-led recovery this week that caused it to move back above the 1.37 level. The UK currency has largely traded in unison with global risk sentiment in financial markets of late – a scenario that has been prolonged by a barren UK economic calendar this week.
US economic growth weaker than expected in Q2
The dollar was relatively subdued on Thursday, with investor focus firmly trained on potential clues from the Federal Reserve about monetary policy tapering at its annual Jackson Hole symposium – which commenced on Thursday.
US economic growth rose slightly last quarter to 6.5% on an annualised basis – a weaker-than-expected increase – the government said on Thursday in a report that indicated a sustained consumer-led rebound from the pandemic-fuelled recession. However, concerns are mounting that the Delta variant of the coronavirus is beginning to cause a slowdown. The data from the US Commerce Department missed economists’ forecasts of 8.5% growth on an annualised basis and followed a 6.3% increase during the first quarter.
Despite falling short of expectations, the reading brought US output back above its pre-pandemic level for the first time since Covid-19 struck, and economists predict robust growth for the rest of the year.
The number of new weekly jobless claims for unemployment benefits reached a pandemic-era low over the past month, a sign the US job market recovery remains firm despite uncertainty surrounding the Delta variant. The figures from the Labor Department on Thursday showed unemployment claims ticked up to 353,000 last week from a revised 349,000 the previous week. The four-week moving average, which addresses volatility in the weekly figures, dropped to 366,500 last week – a new pandemic-era low.
Applications for unemployment benefits – which topped 900,000 in January – have trended downward since the start of the year. They have continued to decline since late July despite a surge in the Delta variant, with many people who are fully vaccinated feeling more willing to resume normal life.
Continuing claims for regular state programmes – a proxy for the number of people receiving benefits – also declined to pandemic-era lows recently. About 2.86 million people were collecting unemployment benefits through state programmes in the week ended 14 Aug – the lowest level since March 2020.
By this morning, the pound vs dollar rate had slipped below the 1.37 level after the US currency was buoyed slightly by fresh calls for early monetary tapering from some Fed officials.
A raft of economic indicators are scheduled for release from the US economy today, including Personal Income, Personal Spending, and the Michigan Consumer Sentiment Index.
The Fed’s Jackson Hole conference kicked off on Thursday in virtual format, but all eyes are on Fed Chair Jerome Powell’s speech on Friday, during which he is expected to signal when the central bank could start dialling back its monetary stimulus.