Over the past five days we have seen a huge shift for cable as the greenback continued its march against the pound, this has led to exchange rates falling to their lowest since July 2010.
As you can see from the graph above we opened the week just
over the 1.55 mark and have steadily declined throughout the week, with the
exception of Wednesday where we saw a sudden a sharp decline of just over a
percent in a matter of minutes. Below we will look at what caused this and what
the markets have in store for cable over the coming weeks.
Since the New Year, rates have headed one way for
the pound/dollar cross, seeing a decline of over 10 cents in dollars favour. With
the fiscal cliff still looming large over the U.S many are expecting the dollar
to weaken. In fact, we could actually see the opposite.
Why would the dollar strengthen when the economy is
struggling and the government are implementing tax increases and budget cuts?
The answer is simple. As a safe haven currency, tax
increases and spending cuts in the U.S is seen by many investors as a positive
for the currency causing an increase in dollar demand resulting in it becoming
more expensive to buy the greenback and we see rates drop.
Recent dollar strength coupled with the UK’s under performing
economy has seen nearly a 6.5% drop in rates, with the UK’s triple A credit
rating still under fire a lot will depend on whether the UK economy enters back into a
recession before we can expect to see any loses retraced. A recession occurs
when an economy contracts for two consecutive quarters. We have already seen
the UK
economy contracted in the final quarter of 2012 with a GDP reading of -0.3%.
Many analysts are expecting the UK
to contract further in the first quarter of 2013. If this happens, we could see the UK lose its triple A rating and exchange rates to drop even further.
So what happens if we avoid a triple dip recession?
Should the UK
exceed expectations and narrowly avoid a recession we could see some of
sterling’s loses regained. However, the UK avoiding a recession does not
guarantee our prestigious credit rating will be safe and should the
U.S implement something of value regarding the impending Fiscal Cliff we could
see rates either remain where they are or drop lower.
With so much uncertainty surrounding the pound at present the best way to protect yourself and maximise your currency
is to complete the contact form
for a free no obligation consultation. With markets so volatile it is a almost impossible to predict which way rates will move, by completing the contact form I can talk you through
the different processes and tools to ensure you make the very most from your currency transfer.
