Sterling managed to shrug off
poor UK construction data
this morning to hold its ground against the U.S. As the UK markets opened
the GBP/USD cross was sitting over $1.57 but as the construction data was
released rates began to drop and hit a low of $1.5660, the decline was short
lived as over the course of the afternoon rates began to recover and at the
time of writing had broken back over $1.57. With all eyes now turning to
Thursday the next 24 hours will be interesting as we may start to see some
pricing into the market as talk of another cash injection by the Bank of
England (BoE) looks more and more likely.
In the UK
the construction sector fell at it quickest pace for two and half years for the
month of June. According to the PMI index activity fell in the sector from 54.4
in May to 48.2 in June. Any figure below 50 indicates contraction and added to
the poor manufacturing data released on Monday today’s news will add to the
calls for the BoE to add to its quantitative easing programme.
But how will quantitative easing affect exchange rates? It’s
a tricky one, if you look around you will find arguments for both sides. On one
hand a round of QE could reduce the value of the pound which would see pound/dollar
rates fall back from their current levels, but on the other hand some analyst believe
that the BoE resuming its asset purchasing scheme coupled with the European
Central Bank (ECB) cutting interest rates could help push sterling’s value
higher as it could shore up the UK economy.
It is another example of how difficult it can be to predict
which way the market will move, as everyone has their own opinion and there are
no set rules in place. What you can do is make sure you are using all the tools
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