After a slow start, Sterling
finished the week just over 1% higher against the US dollar. At the time of
writing, cable was pushing back towards the $1.57 mark peaking at 1.5695 to
reach the currency pairings highest level for seven days. In this weeks report
we will take a closer look into the events that affected the pound/dollar
cross.
Early in week rates fell back to $1.5565 due to safe haven
flows as investors looked towards the EU summit where they expected the
European Central Bank (ECB) would need to ease policy if leaders failed to make
progress in tackling the growing euro-zone debt crisis. When investors pull out
of the single currency and head back to the greenback it strengthens the US
dollar making it more expensive to buy, this is good news for anyone looking to
sell dollars but goes against those looking to buy.
Rates remained relatively flat through the middle of the
week despite some positive news for the UK economy. On Wednesday UK retail
sales came in higher than forecast, figures showed that sales has leapt at
their fastest rate in 18 months for the month of June as the country splashed
out during the Queens Jubilee celebrations.
The data did little to strengthen the pounds value following
comments made by Bank of England
(BoE) chief Sir Mervyn King. Britain’s
economic outlook has worsened due to the deepening euro-zone crisis, raising
expectations that Bank of England policymakers will look at another round of
quantitative easing at their meeting next week.
On Thursday sterling/dollar rates dropped to $1.5520, their
lowest levels for two weeks. This followed an announcement by the Office of
National Statistics that confirmed the UK was stuck in a recession and
again increasing the possibilities of further monetary stimulus by the BoE.
However, some analysts believe further QE could already be priced into the
currency market and that another cash injection into the UK economy could be seen
pre-emptive move and lead to sterling gaining strength against the USD and
Euro.
The drop was short lived as the pound recovered over the
course of Friday to push rates back towards the $1.57 mentioned earlier. The
cause was down to European leaders agreeing to try and cap the borrowing costs
of weaker euro-zone countries and creating a single supervisory body for the
euro-zone banks. The outcome of the summit came as surprise and led to
increased appetite for riskier currencies such as the euro and sterling.
With so much uncertainty still surrounding the currency
markets it is important to stay in contact. If
you are looking at buying or selling dollars in the coming months it is vital
you are aware and understand what options are available so you can make the
most from your currency transaction. Click here to send me a no obligatin enquiry to discuss in more detail.
