Pound/dollar exchange rate weekly overview

What a week it’s been for the pound/dollar cross, after Wednesdays news that the UK slipped back into recession cable jumped to its highest levels for seven months to $1.6230 as the graph below shows. Dollar weakness was the main driver as Fed Chairman Ben Bernanke left the door open for further monetary stimulus.

After a relatively stable start the week the GDP data release on Wednesday saw Sterling fall away as the UK economy fell 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 shrunk for a second consecutive quarter came as a bit of a surprise, over the last few weeks we had seen a batch of positive data support claim that the UK could 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 a technical recession would have led to further losses for the GBP/USD cross. But With U.S unemployment being so high it was always likely that Mr Bernanke would keep the door open for further monetary stimulus; these thoughts were also supported by the US data release that core durable goods orders contracted by 1.1% when the forecast had been for 0.6% growth.

On the back of the Fed Chairman’s speech Sterling climbed to its highest level for more than seven months against the dollar, Mr Bernanke said that U.S monetary policy was “more or less in the right place” but the central bank would not hesitate to enter into another round of quantitative easing if the U.S economy were to weaken.

It seems the UK has bounced back from Wednesdays news as data released towards the end of the week showed that UK consumer confidence reached a nine-month high in March, according to the Nationwide Building Society, the confidence index increased to 53, up nine points from February.

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 you can contact me by completing the contact form on the homepage of the blog or click here to send me a direct email.