Pound climbs near fresh highs against dollar amid optimism for UK recovery

·Contributor
·4-min read
Sterling's rise coming after new data showed that the UK is bouncing back strongly from months of lockdown. Photo: Anthony Devlin/Getty Images
Sterling's rise coming after new data showed that the UK is bouncing back strongly from months of lockdown. Photo: Anthony Devlin/Getty Images

The pound was within touching distance of fresh highs against the dollar (GBPUSD=X) on Friday amid rising hopes for a rapid economic recovery in Britain.

Sterling is currently trading 0.16% higher against the greenback at $1.4211, on track for its third consecutive week of gains against the currency, while it has pushed 0.18% up against the euro (GBPEUR=X) at €1.1630.

The dollar has recently been held back by expectations that America will continue to stimulate its economy through loose monetary policy and high government spending. 

The pound climbed as high as €1.42339 during Friday’s session, just short of February's high of 1.42433, when it hit a near-three-year high.

“The path...from here is not a straight line however, and the pound will have to navigate the end of furlough carefully in particular given the expected increase in unemployment that will likely come as government support ends,” said Jeremy Thomson-Cook, chief economist at international business payments specialist Equals Money.

The pound pushed higher against the dollar amid hopes for a strong economic recovery from coronavirus. Chart: Yahoo Finance
The pound pushed higher against the dollar amid hopes for a strong economic recovery from coronavirus. Chart: Yahoo Finance

It comes after new data showed that the UK is bouncing back strongly from months of lockdown and the onslaught of Brexit, with key economic indicators surging as restrictions are eased.

IHS Markit/CIPS Flash UK Composite PMI showed on Friday that its measure of private sector growth hit the highest since the index began in 1998, with hotels, restaurants and other consumer-facing services posting the strongest demand.

This lifted IHS Markit’s purchasing managers index (PMI) to 62 in May, from 60.7 in April this year.

The reading for the UK's biggest sector — services, which has been hammered by the coronavirus crisis, rose to 61.8 from April’s 59.2, the highest rise since 2013.

Watch: UK shoppers shrug off pyjamas, splurge on clothes

The rally also followed a jump in UK retail sales and consumer confidence.

Retail sales jumped 9.2% last month compared with March, beating expectations, as non-essential shops reopened on 12 April.

Compared with April 2020, during the first national lockdown, sales were up 43%, according to the Office for National Statistics (ONS). Sales were also 9.9% higher than the last month of trading before COVID-19 hit.

Shoppers indulged in new clothes, including outerwear and knitwear, compared with previous shopping habits of wearing comfortable clothes and loungewear for indoors.

“The easing of lockdown has been just the excuse the Great British public needed to head out and buy a new outfit or two,” Danni Hewson, financial analyst at AJ Bell, said.

“The latest retail sales figures show the lifting of restrictions on non-essential retail has been just the tonic for ailing businesses and that the much-discussed pent up demand is real.”

The easing of travel restrictions also saw a spike in fuel sales, with petrol stations seeing a 69.4% jump compared with March.

Read more: FTSE falls despite retail sales and consumer confidence rising in April

A separate report revealed that British consumers are optimistic about the UK economy amid the lifting of lockdown restrictions and the vaccination rollout.

The GfK consumer confidence index improved to -9 in May from -15 in April, the highest since March 2020. GFK’s gauge of optimism about the economic outlook over the next 12 months jumped by 15 percentage points.

The UK’s vaccine rollout programme is still continuing at pace, with more than 70% of adults now receiving their first dose, the government has said.

At the time of writing, some 37 million people have had their first jab and 21 million have received their second, official data shows.

It comes after appointments for second doses were brought forward from 12 to eight weeks for those in the top nine priority groups, due to a surge in the so-called Indian variant of the virus.

Earlier this week health secretary Matt Hancock said that the UK had one of the highest uptake rates in the world.

Watch: Should I book a holiday in 2021?

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