Last week saw the Pound make steady gains against the Dollar despite fears that Thursday’s announcement of more quantitative easing by the Bank of England would weaken Sterling across the board and drive GBP/USD rates down.
Conversely, Sterling Dollar rates actually climbed half a cent at the time of the announcement as investors saw the Bank of England’s decision as a positive step towards stimulating economic growth.Subsequently, investors moved away from the perceived safe-haven of the US Dollar and into riskier currencies, benefiting the Pound and driving GBP/USD rates upwards.
As has so often been the case recently, it is difficult to comment on the movement of Cable, without mentioning the effect the current Eurozone crisis is having on the currency pairing. In what seems to be a never-ending saga, all eyes were on Greece last week as it was hoped that they would reach an agreement on austerity measures and avoid a disorderly default. The belief that a deal would be struck broadly buoyed riskier currencies, strengthening the Pound and weighing heavily on the safe-haven Greenback, driving Cable up to 1.5929, its highest level since mid - November.
The Bank of England sounded a bit more positive about the UK’s economic prospects last week after better than expected PMI data was released on Thursday. Recent surveys had painted a more positive picture and inflation is expected to undershoot 2 % in the medium term without the need for further adjustments in monetary policy.
The Pound was further boosted after UK industrial data beat forecasts and the trade deficit narrowed more than expected. However, Sterling’s rally proved to be fleeting as GBP/USD rates dropped off sharply on Friday, dropping around a cent over the course of the day, after a reversal in risk sentiment as investors once again moved towards the safe-haven.
"We have a slightly more risk averse environment today but sterling has performed relatively well in the aftermath of QE," said Simon Derrick, head of currency research at Bank of New York Mellon. Analysts said further jitters about Greece would probably push the pound higher against the euro, but put it under pressure against the safe haven dollar. GBP/USD ended the European session last week in the mid $1.57s.
