The pound continued to struggle against a robust dollar on Friday amid mounting fears global growth is grinding to a halt, the Delta variant of the coronavirus is spreading again. and central banks could pull monetary stimulus sooner than expected. By the end of the day, the pound vs dollar rate was hovering above the 1.36 level having touched a fresh one-month low at 1.3614.
The UK currency was also feeling the pressure of disappointing retail sales data on Friday. UK sales unexpectedly fell sharply in July as the boost from the Euro 2020 football tournament to food and drink purchases diminished. The figures from the Office for National Statistics showed sales volumes fell 2.5% from June – missing economists’ forecast of a 0.2% rise. However, market analysts believe the pound was more likely to be influenced by global risk sentiment than by UK data.
Riskier currencies – such as the pound – took a knock last week as global risk appetite weakened on growing expectations that the rapid spread of the Delta variant will derail economic growth, boosting demand for the safe-haven dollar.
Central banks have ramped up signals indicating they may begin dialing back the ultra-accommodative monetary stimulus measures implemented in response to the Covid crisis sooner rather than later. The communications from monetary policymakers have weighed on risk appetite, lending the dollar further support.
The minutes of the Fed’s July meeting, released on Wednesday, showed central bank officials largely expect to taper their monthly purchases of Treasury bonds and mortgage-backed securities later this year. They also noted: “the risks that rising Covid-19 cases associated with the spread of the Delta variant could cause delays in returning to work and school, and so damp the economic recovery.”
The dollar was little moved by weekly unemployment data on Thursday showing that the number of people making first-time filings for unemployment insurance fell in early August to levels last seen in mid-March 2020.
Information provider IHS Markit releases the August manufacturing and services PMIs from the UK and US economies today. The Chicago Fed National Activity Index for July also hits the headlines.
The pound has no big data releases ahead this week, so investors will be closely monitoring a slew of influential economic indicators from the US economy, including New Home Sales on Tuesday, Durable Goods Orders on Wednesday and Gross Domestic Product on Thursday.
The Jackson Hole Economic Policy Symposium – an annual forum for central bankers, policy experts and academics – is also held this week.