The gains we witnessed for sterling/dollar exchange rates at the start of the week seem to have been short lived as the pound resumed its recent trend and fell back against the dollar. At the time of writing this post rates were sitting at $1.5027 (the lowest we had seen throughout trading today). In today's blog I will cover the events that have effected cables performance over the past 48 hours.
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Yesterday (Tuesday) saw some positive news for the UK economy and improved sterling's performance slightly, retail sales figures for February came in higher than expected and showed that sales had grown at their fastest rate in over three years. Any major gains on the back of the data release were muted as the UK construction sector suffered its worst month since 2009 and markets wait in anticipation for the results of the Bank of England (BoE) meeting on Thursday afternoon.
Decision day
As I have mentioned a number of times over recent weeks the pound has been coming under increasing pressure and I expect tomorrow will be no different. Tomorrows BoE meeting will see policy makers announce their latest interest rate and Quantitative Easing (QE) decision. Last month three of the nine members voted for further stimulus (which included the BoE Governor Mervyn King) and if two more members decide that more QE is required to stimulate growth it is likely we could see sterling suffer, as the last time QE was announced the pound fell sharply against a number of currencies in the matter of minutes.
What if no QE is announced, will we see rates move back up?
Although it might lend some short term support for sterling and exchange rates, the risk of a triple-dip recession is still looming, I think the uncertainty surrounding the UK will continue until the official Gross Domestic Product figures (GDP) are released in April. Even if no QE is announced I don't think will will see exchange rates shot back up towards $1.60 as the Bank of England seem keen to keep sterling's value down to try and boost UK exports. If we avoid recession in April that will be the time we start to see rates increase as some of the pressure will have eased but even then I believe the gains will be limited.
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