Sterling gains as US dollar's recent rise stalls due to lowering yields on US treasury bonds

Mon 19 Apr 2021
Posted by: William Barns-Graham
Features

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Pound sterling last week strengthened value in relation to the US dollar and euro as renewed optimism over the country’s vaccine rollout coincided with the reopening of the hospitality sector.

The dollar also dipped following fresh demand for US treasury bonds, despite economic data showing the US economy’s recovery from the pandemic was gathering pace.

Dollar stumbles after recent gains

The US dollar gained ground early last week following a series of robust economic reports.

New data showed that retail sales leaped by 9.8% in March as Americans armed with stimulus funds stormed the shopping malls. Jobless claims figures for the week ending 9 April were also encouraging, with a drop of 576,000 – the lowest post-pandemic level – reported.

Towards the latter part of the week the dollar came under pressure as fresh demand for US treasury bonds pushed their prices higher (and their yields lower).

The 10-year yields were below 1.57% after having hit 1.77% a few weeks ago.

Pound rises

Having started the week at US$1.37, Sterling ended the week valued at $1.38. This was despite disappointing growth figures for the UK economy in February – with the 0.4% increase slightly below the 0.5% that was projected.

This morning (19 April) saw a further rise against the dollar to above $1.385 with the market getting behind the rapid vaccination programme and the easing of lockdown restrictions.

The pound was also slightly up on the euro from €1.152 to Friday’s close of €1.155.

Euro boosted

In Europe, reports of a slowing in new Covid-19 infections and an acceleration of EU vaccination programmes boosted the euro.

Despite the US being further ahead in its own inoculation push, falling US yields led the euro to close the week at close to US$1.20 in value.

Markets reach new heights

Stocks recorded post-pandemics highs last week with the FTSE 100 hitting a one-year peak on Friday at 7,020 and the Dow Jones Industrial reaching all-time record levels of 34,260.

Oil rises

Oil prices rose the week after the American Petroleum Institute reported a larger than expected use of oil inventories, at 3.6 million barrels for the week as opposed to a 2.9 million forecast.

OPEC raised its forecast for global oil demand growth this year to 5.95 million barrels per day in its monthly report released on Tuesday, saying that “the recovery is very much leaning towards the second half of 2021”. 

This caused oil to rise from $59.50 per barrel to a high of $63.75 on Friday.

The week ahead

There will plenty of data to digest, with the European Central Bank’s interest rate decision of particular interest.

News of countries’ race to inoculate their populations will also affect the value of their respective currencies.

Economic data 

Highlights this week include:

Tuesday (20 April)

  • UK unemployment data

Wednesday

  • UK Consumer Price Index inflation data
  • UK Producer Price Index

Thursday

  • ECB interest rate decision
  • Eurozone consumer confidence

Friday

  • UK retail sales data
  • Eurozone Purchasing Managers Index (PMI) data
  • US PMI data