The last two weeks have brought us some of the
greatest sporting moments the world has ever seen, and with the Olympics now
over we wait to see if the UK
economy has benefited from this event. Last week saw the volatility in the
currency markets continue though as comments from the Bank of England (BoE) and
results from UK
data releases impacted the performance of the GBP/USD cross.
The week did not start well for the Pound as it
fell against the Dollar; Sterling was down by 0.4% to $1.5584 as investors
looked towards Wednesday’s quarterly inflation report, the report is always
eagerly anticipated as the BoE give their latest predictions for growth and
inflation, giving us an indication that more quantitative easing or a potential
interest rate cut could be on the cards.
Positive news followed and sterling edged
slightly higher after UK
manufacturing and industrial output data released on Tuesday was better than
forecast. Although manufacturing output dropped by 2.9% in June it beat
expectations the sector would fall by 4.1%. Industrial output also dropped to
2.5% but again beat the predicted 3.4% decline.
So, onto the long awaited inflation report. As
outlined in the Euro report above, the BoE forecast that the UK economy will
hardly grow for the remainder of 2012 and also cut their projections for future
years. As Mervyn King spoke cable reached its highest level for a week as rates
pushed towards $1.57.
The gains were short lived as data released on
Thursday showed that the U.S trade deficit narrowed for the month of June while
the UK
trade deficit for the same month hit its highest levels in 15 years. This wiped
out the gains seen the previous day and caused the pound/dollar cross to fall
by 0.6% which meant rates dropped back to the same level that we saw at the
start of the week.
It is widely expected that sterling will continue
to fall and by the end of the year we could see rates hit $1.53, that would
mean a 2% drop from where we are now and to put that kind of movement into
monetary terms it would see you receive $6000.00 less on a £200,000 trade.
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