Wednesday, 13 January 2016

GBP/USD exchange rates recover slightly

Good afternoon,

After a frantic start to the year today has seen the FX markets return to some kind of normality. After falling to a fresh low against the dollar yesterday afternoon the pound managed to claw back some ground during Wednesday's session after tensions eased in China.

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Despite a lack of eco-stats the pound was able to climb back over the $1.44 barrier and reached a high of $1.4474, putting an temporary stop to proceedings which have seen the pound lose around 3% since the start of 2016.

GBP/USD graph

What has helped the pound today?

Last week saw investors pour into the U.S. dollar after growing concerns in China, helping the greenback gain across the board. However better than forecast Chinese data today helped to ease fears over the globes second biggest economy, giving the pound a chance to stage a mini revival.


So will we see rates push back towards $1.50?

Not at the moment, as I mentioned yesterday there is more scope for the GBP/USD to fall further rather than climb back to the levels we witnessed before Christmas.

Now that the Federal Reserve have raised interest rates and the potential for further hikes this year, the dollar has the potential to gain in value even more in the coming months. Coupled with the fact that the Bank of England are unlikely to increase their benchmark rate this year, the outlook for the pound does not look great.

All eyes in the UK are now focusing on the Bank of England rate announcement and minutes tomorrow afternoon. The result should give us a clear indication to the central banks views on the current state of the UK economy and I for one are not expecting them to paint a pretty picture.

I wouldn't be surprised to see the GBP/USD cross test the lows we saw yesterday and if the MPC vote 9-0 in favour of keeping rates on hold we could see the currency pair fall back towards the $1.42 mark.


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