GBP USD Exchange Rate Climbs to Two and a Half Month High

The pound extended its winning streak against the dollar on Thursday, climbing to its highest level in two and a half months amid dollar weakness and political turmoil in Downing Street.

The pound jumped as much as 0.3% on Thursday to reach 1.3747 – its highest level since October.

The move higher was given added momentum by speculation that Boris Johnson will step down as prime minister over attendance of a party at Downing Street during the first national Covid-19 lockdown.

Mr Johnson is under pressure from opposition politicians and within his own party to resign for breaking government rules to tame the spread of Covid-19 in May 2020.

According to some market analysts, his resignation could give the pound a further boost depending on who replaces him at the helm – with chancellor Rishi Sunak and general secretary Liz Truss the front runners.

The UK economy is finally bigger than before the pandemic after growing more than expected in November before the Omicron coronavirus variant struck.

Office for National Statistics (ONS) data showed gross domestic product (GDP) had risen 0.9% during November, up from a just 0.1% rise in October and 0.7% bigger than it was in February 2020. Economists had forecast a 0.4% rise for November.

ONS chief economist Grant Fitzner said: “The economy grew strongly in the month before Omicron struck, with architects, retailers, couriers and accountants having a bumper month.”

Dollar continues to fall

The dollar extended its drop on Thursday, a day after data confirmed an expected surge in US consumer prices in December. However, investors do not expect the red-hot inflation reading to shift an already hawkish Fed too much.

US producer price inflation slowed last month as the cost of goods dropped amid signs that supply chains disruptions are starting to ease – indicating that inflation has probably peaked.

The producer price index for final demand nudged up 0.2% in December after surging 1% the previous month the Labour Department said on Thursday.

In testimony before the Senate banking committee on Thursday, Lael Brainard – Joe Biden’s nominee to serve as vice-chair of the Federal Reserve – said the battle against high inflation is the Federal Reserve’s “most important task”, embracing the central bank’s pivot towards tighter monetary policy to curb rising prices.

The number of Americans filing new claims for unemployment benefits jumped to an eight-week high at the start of the year amid a spike in Covid-19 infections, but remained consistent with a tightening labour market.

Initial unemployment claims unexpectedly increased 23,000 to a seasonally adjusted 230,000 last week, the highest reading since mid-November – but remained low compared to their pandemic-era averages. Economists had forecast 200,000 applications for the week ended 7 January.

Looking ahead

Retail sales numbers for the Christmas period and the Michigan consumer sentiment index for January are slated for release in the US today.

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