Sterling hits two month low against the U.S Dollar

Last week saw sterling continue to fall against the safe haven U.S dollar, as rates slipped to their lowest levels for two months. Cable has been on the decline since rates hit an eight month high of $1.6304 only three weeks ago. In this week’s report we will take a closer look at what has been responsible for driving the rates down.

It was a relatively quiet start to the week in terms data releases in the UK and the U.S as all eyes were focused on Wednesday as we had unemployment data and the Bank of England (BoE) inflation report, with both potentially having an impact onto the value of the pound.

As the results surfaced Sterling fell to its lowest levels for more than a month as the report fuelled speculation that more quantitative easing could be on the horizon. Rates fell sharply on the back of the data release reaching a low of $1.5889 before recovering briefly back to $1.59.

Bank of England Governor Mervyn King indicated that the UK could be vulnerable from the growing issues surrounding the Euro-zone which prompted investors to sell the pound and return to the U.S dollar.

Talk of a Greek default has surfaced yet again and policymakers are concerned that Greece leaving the Euro will have a knock on effect for the British banks. This in turn could affect the UK recovery and result in the BoE adding to their asset purchasing scheme by pumping more money into the UK economy to stimulate growth.

No-one is 100% sure what will happen with exchange rates should Greece default and leave the Euro. There are arguments for both sides, could trimming off the dead wood make the Euro stronger or will it have a knock of effect and lead to Spain, Italy, Portugal and Ireland looking to follow suit. So while the uncertainty surrounding the single currency continues it is unlikely we will see the pound gain strength and push back towards the $1.63 mark.

One of the only positives for the UK came in the form of the unemployment figures that showed the number of people out of work and claiming for unemployment fell at it quickest pace for nearly 12 months.

On Thursday and Friday there were no data releases from the UK so sterling was at the mercy of events in the U.S and Euro-zone. A run of poor data from the US on Thursday saw a small change to Sterling’s fortunes. Initial Jobless Claims, Continuing Jobless Claims and the Philadelphia Fed Manufacturing Survey all came out weaker than expected and put a temporary halt to the decline.

But as is the case when the markets are so volatile it wasn’t long before more negative data from the Euro-zone increased investor appetite for the greenback and the dollar was back on the march. A cut in Greece’s credit rating and a number of downgrades to Spanish banks caused pound dollar rates to slip to $1.5732; their lowest levels since March, and a 3.5% decrease in just three weeks.

If you need to convert currency and want to achieve the best pound/dollar exchange rates it is vital you know what options are available. You can protect yourself against rates moving the wrong way, trying to guess which way the market is going to move and leaving your transaction to the last minute could prove very costly. You can contact me by clicking here to send me a direct email or by completing the contact form on the homepage of the blog.