Pound to Dollar Rate Slides to Eight-month Low

Pound to Dollar Rate Slides to Eight-month Low

The pound slumped to an eight-month low against the dollar on Tuesday, as concerns escalated that the fuel crisis consuming the UK could lead to a sharp slowdown in economic growth alongside a surge in inflation. The UK currency fell as low as 1.353, which represented its biggest daily drop against its US contemporary this year and the lowest level since January. Panic buying of petrol in recent days has been attributed to broader supply chain pressures that threaten to stifle the economy’s recovery from the Covid-19 pandemic.

The pound’s sharp drop occurred despite a surge in UK government bond yields as investor expectations of a rate hike by February grew, following a hawkish monetary policy statement from the Bank of England last week.

Dollar climbs on rising US Treasury yields

Investors were attracted to the dollar on Tuesday by a rise in US Treasury yields, which have surged to a three-month peak. The movement was prompted by comments from the Federal Reserve following its meeting last week when it confirmed it will likely start tapering monthly bond purchases as soon as November and suggested that interest rate hikes may follow.

Home price growth in the US jumped to record highs in July, data showed on Tuesday. Standard & Poor’s CoreLogic Case-Shiller National Home Price Index recorded a 19.7% annual increase, climbing from 18.7% in June – the fourth consecutive month the growth rate posted a record. The 20-City Composite Index recorded a 19.9% annual increase, up from 19.1% in June – just shy of analysts’ forecast of a 20% annual gain.

In an accompanying statement, Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices, said: “The National Composite Index marked its fourteenth consecutive month of accelerating prices with a 19.7% gain from year-ago levels, up from 18.7% in June and 16.9% in May,”

It wasn’t all good news on the data front for the dollar on Tuesday after Conference Board figures showed US consumer confidence unexpectedly declined this month, as soaring Covid-19 infections heightened concerns about the economy’s prospects. The Consumer Confidence Index fell to 109.3 from 115.2 in August – the third consecutive drop and the lowest reading since February. Economists had expected the index to tick up to 114.5.

Looking ahead

More data from the US housing market is slated for release today when Pending Home Sales hit the headlines.