The pound jumped to more than a week’s high against the dollar on Friday after the US currency was dragged lower by comments from Federal Reserve chair Jerome Powell. In prepared remarks for a speech to the Jackson Hole economic symposium, Powell stopped short of indicating the timing for a shift in monetary policy after signalling the central bank will remain patient as it attempts to encourage full employment in the economy. The lack of clarity about the potential dialling back of the Fed’s monetary stimulus programme tripped up the dollar, helping the pound to accelerate to its highest level (1.3781) since 18 August.
Data released by the Commerce Department earlier on Friday showed inflation is maintaining an upwards trajectory. The Personal Consumption Expenditures Price Index – the Fed’s preferred gauge of inflation – was up 4.2% in the 12 months through July. This represented the third consecutive month it has been at least double the central bank’s 2% target.
Consumer spending – which accounts for more than two-thirds of US economic activity – rose 0.3% in July having advanced 1.1% in June. Last month’s increase was in line with economists’ forecast. Personal income jumped 1.1% after rising 0.2% in June.
The University of Michigan Consumer Sentiment Index recorded a significant drop in early August as the Delta variant of the coronavirus raised fears about the course of the economic recovery. The index – released on Friday – dropped to 70.2 in its preliminary August reading, down over 13% from 81.2 in July. This represented the lowest reading for the index since 2011 as it fell well short of economists forecast of 81.3.
Residential housing contract activity for existing single-family homes in the US declined for the second consecutive month in July. The National Association of Realtors (NAR) said on Monday that its Pending Home Sales Index dropped 1.8% last month having fallen a revised 2% in June. Economists had forecast sales would increase 0.4%. According to Lawrence Yun, NAR’s chief economist: “The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,”
This morning, the pound vs dollar rate jumped again to within touching distance of the 1.38 benchmark.
The bank holiday Monday in the UK means the first significant release for the pound this week is scheduled for Wednesday when the Markit Manufacturing Purchasing Managers’ Index hits the headlines.
Several influential economic indicators are slated for release from the US economy today: Housing Price Index, S&P/Case-Shiller Home Price Indices, Chicago Purchasing Managers’ Index and Consumer Confidence.