Pound to Dollar Rate Shrugs Off UK’s Economic Woes

Pound to Dollar Rate Shrugs Off UK’s Economic Woes

The pound was sanguine on Friday, shrugging off news that the brakes were applied to the country’s economic rebound in July. Investors in the UK currency instead chose to focus on the Bank of England’s (BoE) renewed hawkishness, which is outweighing any underwhelming economic indicators that emerge from the nation’s economy – causing the pound vs dollar rate to jump as high as 1.38847. BoE Governor Andrew Bailey told lawmakers last week that while economic growth was plateauing, he believes a minimum criteria for tighter policy has been achieved.

The UK economic rebound from the winter lockdown almost stalled in July despite the removal of most lockdown restrictions. A surge in the Delta variant of the coronavirus, a subsequent fall in retail sales and the impact of “pingdemic” shortages in the workforce were largely to blame for the slowdown, raising doubts over the strength of the recovery.

Output only increased 0.1% in July from the previous month, the Office for National Statistics (ONS) said on Friday, falling well below the 1% expansion recorded in June and missing the 0.6% growth forecast by economists. The reading represented the weakest monthly gross domestic product (GDP) performance since January and left GDP 2.1% below levels seen in February last year, before the pandemic ravaged the economy.

Jonathan Athow, ONS’s deputy national statistician for economic statistics said: “After many months during which the economy grew strongly, making up much of the lost ground from the pandemic, there was little growth overall in July,”

The UK service sector, which makes up 80% of the economy, recorded no growth overall in July, while rising costs and shortages of raw materials triggered a fall in construction, and manufacturing remained broadly flat.

US producer prices remain hot

The pound’s rise against the dollar on Friday was achieved despite the emergence of typically accommodative conditions for the US currency, as Treasury yields moved higher and data showed that producer prices increased solidly last month.

US producer prices rose in August, prompting the largest annual gain in almost 11 years. The Producer Price Index for final demand increased 0.7% in August following two consecutive monthly increases of 1%, the Labor Department said on Friday. The rise was triggered by a 0.7% advance in services following a 1.1% leap the previous month. The figures indicate that high inflation is likely to endure as the pandemic continues to squeeze supply chains.

Looking ahead

Following a quiet start to the week in economic calendars on both sides of the pond, the ILO Unemployment Rate for the UK and US inflation figures hit the headlines on Tuesday.