The British pound sterling (GBP) dropped as much as 0.5% against the US dollar (USD) on Tuesday, reaching a low of $1.2467, after the latest data showed that Britain’s unemployment rate unexpectedly rose to 3.9% in the three months to March. The increase in the jobless rate was driven by a rise in the number of people seeking to get back into the jobs market, as the economy gradually reopened from the lockdown measures imposed to contain the coronavirus pandemic.
Why did the pound sterling weaken against the dollar?
The pound sterling has been under pressure against the dollar since the start of the year, as the UK faced a series of challenges related to Brexit, Covid-19 and economic recovery. The uncertainty over the future trade relationship with the European Union (EU), which accounts for about half of Britain’s exports and imports, has weighed on the confidence of businesses and investors. The UK left the EU’s single market and customs union on January 1, 2021, but many aspects of the new arrangements are still being negotiated or implemented.
The Covid-19 crisis has also taken a heavy toll on the UK economy, which contracted by 9.8% in 2020, the worst performance among the G7 countries. The government imposed several lockdowns and restrictions to curb the spread of the virus, which affected many sectors such as hospitality, retail and tourism. The UK has also suffered one of the highest death tolls from Covid-19 in the world, with over 127,000 fatalities as of May 2021.
However, the UK has also been one of the most successful countries in rolling out Covid-19 vaccines, with more than 50% of its adult population receiving at least one dose as of May 2021. This has boosted hopes that the economy will rebound strongly in the second half of the year, as more activities resume and consumer spending picks up. The Bank of England (BoE) has forecast that the UK economy will grow by 7.25% in 2021, the fastest pace since World War II.
The pound sterling’s performance against the dollar also depends on the relative strength of the US economy and its monetary policy. The US economy has also been hit hard by Covid-19, but it has shown signs of recovery in recent months, thanks to massive fiscal stimulus and vaccine distribution. The US gross domestic product (GDP) grew by 6.4% on an annualized basis in the first quarter of 2021, beating expectations. The US unemployment rate fell to 6% in March, down from a peak of 14.8% in April 2020.
The US Federal Reserve (Fed) has maintained an ultra-loose monetary policy stance to support the economy during the pandemic, keeping its benchmark interest rate near zero and buying $120 billion worth of bonds per month. However, some market participants have speculated that the Fed may start to taper its bond purchases or raise its interest rate sooner than expected, if inflation pressures rise or the economy overheats. This could boost the demand for the dollar as a higher-yielding currency.
What are the implications of a weaker pound sterling for Britain?
A weaker pound sterling can have both positive and negative effects on Britain’s economy and society. On one hand, a weaker pound can make British exports more competitive in foreign markets, as they become cheaper for buyers using other currencies. This can boost British exporters’ revenues and profits, and support economic growth and employment. A weaker pound can also attract more foreign tourists and investors to Britain, as their spending power increases.
On the other hand, a weaker pound can also make imports more expensive for British consumers and businesses, as they have to pay more for goods and services denominated in other currencies. This can reduce their purchasing power and lower their living standards. A weaker pound can also increase inflation pressures in Britain, as imported goods and services become more costly. This can erode consumers’ real incomes and savings, and force the BoE to raise its interest rate to keep inflation under control.
How can you monitor the exchange rate between pound sterling and dollar?
If you want to keep track of how much one pound sterling is worth in US dollars, or vice versa, you can use various online tools and platforms that provide live exchange rates and historical data. One such tool is Xe.com , which is a popular website that offers currency conversion services and information.
