The US currency fared well against the struggling
pound last week, benefiting from its status as the world’s safe-haven currency
of choice and the Bank of England’s decision to inject an additional £50
billion into the troubled UK
economy.
After
ending the previous week at a peak of $1.5718 after a supposedly successful EU
summit reversed risk appetite, the pound started last week badly against the
greenback, as a survey showed UK manufacturing activity contracted for a second
month running in June. The weak data fuelled speculation that the Bank of
England would announce further quantitative easing at Thursday morning’s policy
meeting.
Sterling
shrugged off weak UK construction activity data on Tuesday which did little to
affect GBP/USD rates as investors were more concerned over the outcome of
Thursday’s Bank of England (BoE) meeting and the European Central Bank’s (ECB)
interest rate decision. However, it was a different story midweek as sterling
lost ground against the dollar as a survey showed the UK's dominant service sector grew at a much weaker pace than expected last month cementing
expectations the BoE would opt for more stimulus to aid the flagging economy.
Sterling suffered its heaviest losses against the greenback
towards the end of the week, with key central bank announcements and further
weak data weighing heavily on the UK currency, driving Cable down. On
Thursday the pound lost around 0.5% against the dollar, trading at $1.5524,
after a surprise interest rate cut by China, which came at the same time
as the BoE decision, with the ECB later taking centre stage.
On
Thursday the BoE increased asset purchases under its quantitative easing
programme by 50 billion pounds in order to try and stimulate economic growth.
Attention then turned to a move by the European Central Bank to reduce its main
interest rate by 25 basis points to 0.75 percent and cut its deposit rate to
zero in an attempt to revive a deteriorating euro zone economy beset by debt
problems. The dollar gained as a result of its safe-haven status, bringing
GBP/USD rates down.
The
GBP/USD pair ended the week in the same vein. Weaker than expected US
employment figures drove rates down, as is often the case, bad economic data
from the largest economy in the world actually strengthens its currency as
concerned investors seek security in the safe-haven dollar.
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