suggested the race between Barack Obama and Mitt Romney was too close to call and, as a result, the
uncertainty over the outcome encouraged safe haven flows into the dollar, pushing it higher against the
pound. On Monday alone the buoyant US currency gained 0.4% against sterling.
As it was announced that Obama had in fact won the election, and by a fairly substantial margin, the dollar
lost ground against the pound as investors began selling the US currency. Victory for Obama was seen as
ensuring easy monetary policy in the States in the near term. However, sentiment quickly changed and the
dollar subsequently rose to a two-month high against most major currencies.
Concerns over the looming fiscal cliff helped boost demand for the safe-haven greenback, keeping GBP/USD rates below the 1.60 mark. The ‘fiscal cliff’ is essentially a mixture of tax increases and spending cuts, due to extract around $600 billion from the US economy. The year-over-year changes for fiscal years 2012-2013 include a 19.63% increase in taxes and 0.25% reduction in spending. The fiscal cliff is expected to increase the chance of the US entering recession again in 2013. As is often the case, concerns over the world’s largest economy actually strengthen its currency, as investors move their assets into the safe-haven dollar. After the dust had settled from the US election, the focus quickly shifted to Spain and talks of another
bailout for the struggling nation’s economy.
The dollar made further gains against sterling as it was announced that Spain was in no hurry to seek another bailout, encouraging further safe-haven flows into the dollar. Another bailout would be seen as positive for Spain and the Eurozone as a whole.
The attention was entirely on Europe as the week drew to a close with key announcements from both the
Bank of England and the European Central Bank. On Thursday the Bank of England announced that they
would not be opting for further monetary stimulus in the near term after better-than-expected GDP figures
eased concerns over the state of the UK economy.
As stated in the Euro report, the UK’s central bank also decided to keep interest rates on hold, as did the
ECB. Sterling subsequently rose against the dollar, recovering from a two week low of $1.5930 struck earlier in the day.
Despite some positive news from the UK, GBP/USD rates plummeted on Friday, with the cross trading around the $1.59 level as markets began winding down ahead of the weekend. There is so much uncertainty surrounding the U.S and UK economy, getting the timing right on your currency transfer remains critical.
If you need the best exchange rates, the first step is to contact me for a free consultation. Click here to complete the application, I can then let you know the options available to you, making sure you are not caught out by adverse exchange rate movements, and ensure you make the most of your currency.
