How will the UK falling back into recession effect the pound/dollar cross?

Wednesday saw Sterling fall away from the recent highs against the dollar as data indicated the UK economy had fallen back into recession. As the data was released rates fell from $1.6160 to 1.6080 before recovering throughout the day and pushing back over the $1.61 mark.

The UK economy slipped back into recession after contracting by 0.2% during the first three months of 2012. A recession is described as two consecutive quarters of contraction and the recent results follow on from the fourth quarter of 2011 where the economy dropped by 0.3%.

The news that the UK economy had contracted for a second consecutive quarter came as a big surprise, over the last few weeks we have seen a batch of positive data support claims that the UK will avoid the double dip. However, a fall in construction output was believed to be the reason behind the unexpected contraction.

You would think that the UK heading back into recession would have led to further losses for the GBP/USD cross. But with Fed chairman Ben Bernanke due to speak later in the day, it is widely expected he will strike a dovish tone when it comes to the US economy.

With US unemployment being so high it is likely that Mr Bernanke will keep the door open for further monetary stimulus, these thoughts would have been supported by the US data release that core durable goods orders contracted by 1.1% when the forecast had been for 0.6% growth.

There is so much uncertainty surrounding the U.S and UK economy, getting the timing right on your currency transfer remains critical, if you are buying or selling dollars in the coming months click here to send me a direct email or complete the contact form on the home page of the blog.