The sterling/dollar cross hit its highest level since September 19th at around
1.6120 early last week. This was however short lived as the president of the
ECB Mario Draghi outlined great concerns for the European economy as a whole on
Thursday, which saw investors pull money out of the single currency and into
the safe haven of the greenback. That was coupled with the eagerly awaited
Non-Farm Payroll from the US
on Friday, which came out above the forecast of 93,000 at 146,000. These both
strengthened the Dollar and pushed the GBP/USD rate back down around a point to
the 1.60 level.
Despite the UK coming out of recession recently showing a 1% growth between July and September, the UK economy is still walking a finally balanced tightrope. There were no surprises in store at this month’s MPC meeting as the BOE’s decision to keep interest rates on hold and resist pumping any further funds in to the QE program was widely expected and therefore did little to move the rates. UK interest rates have been kept at a record low of 0.5% since March 2009 and there is little sign of them changing any time soon.
One of
the reasons for the BOE’s halt in its QE program was due to the recent consumer
price data. This showed inflation jumping unexpectedly to 2.7% in October,
compared with 2.2% in the previous month.
Ross Walker, A chief UK
economist at RBS said “They (BOE) have a bit of a balancing act at the moment”
He said this is because inflation is likely to stay just above its 2% target
for several months to come.
From the US the Fiscal
Cliff remains the focus of everyone’s attention. The “Fiscal Cliff” is a
popularised term used to describe the conundrum that the US government
will face at the end of this year, when the terms of the Budget Control Act of
2011 are scheduled to go into effect.
There are
two main routes the US
can take with regards to dealing with this. They can let the current policy
that is scheduled for the start of 2013, go into effect. This involves a number
of tax increases and spending cuts that are expected to weigh heavily on growth
and possibly send the US
economy back into recession. The advantage being that they could see the
deficit cut in half. Alternatively, they can cancel some or indeed all of the
tax increases and spending cuts. This may help growth but would add to the
deficit and increase the chances of the US
facing a similar crisis to Europe.
Whichever
route the US
decides to take, it is likely to face difficulties and we could see some large
movements in the currency markets in the coming weeks and months.
The
GBP/USD cross saw some fairly modest movements last week but even a small
movement can make a substantial difference in the price of a property purchase.
A typical purchase of $200,000 would have a difference of around £1000 between
the highs and lows of last week. For this reason, it is always important to
stay in close contact with me to ensure you are
buying at the right time. If you have not already done so, click here to complete the contact form for a free, no obligations consultation.
