Sterling drops by 0.7% against the dollar

After the four month highs we saw on Tuesday sterling fell sharply against the dollar on Wednesday. The GBP/USD cross dropped by 0.7% from 1.5960 to 1.5848 on the back of the latest Gross Domestic Product (GDP) data release.

Figures from the Office of National Statistics (ONS) have shown that the UK’s economic growth has been revised down to a 0.3% contraction for the last quarter of 2011. The original estimates had shown a contraction of 0.2%.

This has led to the 2011 annual figure for growth to be revised down to 0.7% from 0.8%. There was also a revision for the GDP figure for the three months from April to June 2011, which was revised from no change to a 0.1% contraction.  

Earlier in the year Bank of England chief Sir Mervyn King had said he expected the UK economy to zig-zag between growth and contraction in the coming months. Coupled with new fears of a flare up in the euro zone debt crisis it could lead to investors heading back to the safety of the US dollar, therefore dropping the dollar rate further.

To put this sudden fall into perspective a £200,000 trade on Tuesday would have seen you receive around $2,000 more compared to the same trade on Wednesday. This is why I always talk about timing being the most important factor and catching the market as close to a peak as possible.

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