Today has seen a slight recovery for sterling as exchange rates pushed back towards $1.51 as spending cuts in the U.S weakened the greenback. It was interesting to see which way rates would move this morning as the markets had their first opportunity to react to the weekends events With no data coming from UK today the pound was at the mercy of how investors viewed the cuts President Obama was forced to sign off.
Following Fridays decline which saw cable drop back into the $1.49's all eyes were on the White House to see if congressional leaders could come up with a plan that would avoid huge spending cuts being implemented. However, with talks breaking down with no agreement reached the deadline was fast approaching the President had no option but to sign into effect the spending cuts which will see $85 billion wiped from the U.S budget for 2013.
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In the days leading up to the event Mr Obama had warned that if a deal could not be reached then growth in the economy will suffer and could potentially cost 750,000 people their jobs.
So where does this leave exchange rates?
As I mentioned last week it was impossible to gauge which way rates would have moved, as a safe haven currency weak U.S data often causes the dollar to strengthen and although we have seen some positive movements over the course of today the state of the UK economy has dampened any major spike.
The gains seen today might be the best we see this week as on Thursday will see the results of the latest Bank of England meeting. Some analysts are predicting we could see policymakers increase the current quantitative easing programme which if done may see the pound devalue and exchange rates fall.
This may only a short term prediction as some of our brokers still believe that rates will pick up over the
coming months. One forecast I received this morning indicated that we could see the GBP/USD cross move back towards $1.56 in the next three months. I think this is still someway off at the moment and a lot will depend on how Thursdays meeting pans out.
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