It was another choppy week for the pound/dollar
cross as exchange rates fluctuated by over 1% as investors grew hesitant
following news from the UK,
U.S and euro-zone. Last week saw rates peak at $1.5562 while the low was down
at $1.5393, so in this week’s report we will take a closer look at the events
that caused cable to hit its lowest levels for five weeks.
The week started off in quite fashion as appetite
for the pound was subdued due to the lack of data from the UK, but with investors waiting for
the FED (U.S Federal Reserve) minutes from their June meeting sterling held
just over the four week low seen the previous Friday. Despite a lack of data
sterling gained nearly 0.2% against the dollar to reach $1.5520 but if the FED
minutes give any indication of further stimulus it would lend further support
to the pound and could see rates push even higher.
After the run of poor data we seen over the last
few weeks (which led to the Bank of England to add to their asset purchasing
scheme) there was some positive news for the UK economy on Tuesday as British
Manufacturing and industrial production data came in higher than forecast.
Manufacturing was up by 1.2% month on month in May while Industrial production
was up by 1% from April.
This caused another rise against the greenback as
rates peaked at $1.5550 for the day but the gains were short lived as Bank of
England chief Mervyn King said the UK economy was not showing signs of recovery
and that he was also concerned by the outlook for UK exports, causing a half
point drop for cable as rates fell back to $1.5494. With 50% of the UKs exports
going into the euro-zone Mr King will have one eye on the value of the pound as
this week saw the GBP/EUR rate hit its highest levels for nearly four years,
making UK goods more expensive for the cash strapped euro-zone countries.
Thursday morning gave traders in the UK
their first opportunity to respond to the eagerly anticipated FED minutes which
were released on Wednesday evening. Early on sterling fell back to $1.5456 as
the minutes lowered expectations that further monetary stimulus was on the
cards which quickly increased demand for the greenback. The decline did not
stop there as later in the day cable dropped to its lowest level since June the
6th after U.S jobless claims fell to their lowest in the past four
years with rates slipping back to $1.5393.
But with one final twist sterling
recovered on Friday, shrugging off poor UK construction data to push back
towards $1.5550. Construction output fell by 6.3% in May compared to the same
month in 2011. The main driver was the fall in new public works, which fell by
about 22%, reflecting the impact of government spending cuts.
The last week has once again shown just how
quickly the currency markets can change and how important it is to stay in
touch so I can protect you against adverse market
movements.
