Last week
saw some big movements for the GBP/USD cross. Early on we saw sterling fall to
its lowest levels for a month to $1.5995 before a 1.1% gain towards the end of
week saw cable push back towards $1.62. The gains came despite a relatively
poor week in terms of data releases from the UK, so what caused the spike in
rates? In this week’s report we will take a closer look at to what caused this
unexpected rise.
The Bankof England (BoE) and their policymakers met last week to discuss UK
interest rates and their stimulus package. They met on Thursday and as expected
kept interest rates on hold and decided against adding to the existing
Quantitative Easing Programme (QE) and as a result there was little movement
between the currency pair.
One thing
that would have been on the agenda in regards to stimulus would have been the
poor retail sales data that was released at the start of last week. Figures
released from the British Retail Consortium showed that Christmas sales barely
increased for retailers and will once again fuel speculation that the UK
economy may have contracted for the final quarter of 2012.
All eyes
were on the initial UK GDP estimate released on Friday afternoon, it had been
predicted for the economy to grow by 0.1% but the actual figures showed a
contraction forecast of -0.3%. As the data was released sterling fell just over
half a point from $1.6160 to 1.6095. With Manufacturing and Industrial
Production figures for November released on Friday morning also came in well
below forecast, the UK
is facing the possibility of a triple-dip recession. (Recession is two
consecutive quarters of economic contraction) The focus will now turn to the 25th
Jan when the official GDP figures are released, if the report shows the UK
economy has contracted again questions will be raised as to how the BoE will
attempt to solve the crisis.
Some
analysts are predicting we could see a further £50 billion of QE in the first
half of 2013 and if the BoE opt to go down this road again it is likely we
could see sterling lose ground against a number of currencies. (Under QE the
bank creates money and uses it to purchase government bonds to try and
stimulate the UK
economy)
Despite
the poor data and uncertainty surrounding the UK we did see a big spike for cable
on Thursday. As mentioned in the Euro report, Mario Draghi did an excellent
job in talking up the euro, increasing investor appetite for riskier
currencies. This led to investors pulling out of the safe-haven dollar and
heading back to the single currency, weakening the dollar which in turn pushed
rates towards $1.6170.
So
what next for the GBP/USD cross?
This
recent surge may only be temporary. Over the last couple of weeks we have seen
a steady decline for the pound against the dollar, the package put together by
President Obama to avoid the U.S falling over Fiscal Cliff seems to have done
its job and lent some much needed support to the greenback. With the UK coming
under threat from losing it prized triple-A credit rating (which means
investors could lose confidence in the pound) and safe haven flows into the UK
easing as the euro-zone stabilises the potential for the pound to weaken
against the dollar will continue to grow.
To put
last week’s movements into perspective, if you were looking at purchasing
$200,000.it would have cost you nearly £1400 more at the start of the week
compared to Thursdays high. It also highlights just how important it is to get
the timing right on your currency transfer and to stay in touch. If you haven’t done so already click here to complete the contact form for a free, no-obligation consultation.
