After yesterdays decline sterling rallied against the dollar today as rates recovered and climbed almost 0.75%. At the start of the day the mid-market price was hovering just over the $1.60 mark before hitting $1.6133 in the afternoon. In today's post we will take a closer look into the events that caused this sudden spike.
There was little movement in the currency markets as the Bank of England announced (as expected) to keep interest rates on hold and to not extend their quantitative easing (QE) stimulus programme.
QE is when the bank will create money to pump in to the economy to try and stimulate growth, in the past when the BoE has injected cash it has flooded the market and weakens the value of pound. This tends to mean you will see sterling fall against a number of currencies.
Although the bank has opted not to go down the QE route this time round, it will be interesting to see how policy makers voted when the minutes of today's meeting are released later in the month. Many analysts still feel the bank could look to add to the £375 billion they have pumped into the economy so far, especially if figures released on the 25th of this month show a contraction in growth for the final quarter of 2012.
The main driver for the rise in today's rates came as the European Central Bank (ECB) President Mario Draghi spoke after the Central Banks monthly meeting, he said that policymakers voted unanimously to keep interest rates and hold, lending extra support to the single currency.
This led to a sudden drop for the GBP/EUR cross but at the same time caused a sudden spike for cable, Investors would have been buoyed by Draghi's comments with investor appietite returning to riskier assets. This caused the GBP/USD cross to jump from $1.6045 to $1.6133 in the space of a few hours.
To put this rise into perspective, if you were looking at purchasing $200,000.it would have cost you nearly £1000 less in the afternoon than first thing this morning. It also highlights just how important it is to get the timing right on your currency transfer. Click here to complete the contact form for a free, no obligation consultation.
