The last 36 hours have seen some big movements for the GBP/USD cross, since trading opened yesterday exchange rates fell by 1.1% from $1.5252 to $1.5079 before recovering slightly this afternoon. Today's post will take a closer look at the major factors that have impacted exchange rates and what my thoughts are for the coming few days.
Yesterday morning (Tuesday) did not start brightly for the pound as in the space of a few hours exchange rates fell by over a point on the back of poor UK Construction data. The UK Construction PMI came in lower than forecast and once again showed the sector had contracted and forced down exchange rates. The decline did not stop there as later in the day saw the release of the latest U.S factory order data. Factory orders rose in February at their fastest pace in five months largely thanks to demand for commercial aircraft and with durable goods orders also up by nearly 5.6% sterling dropped to its lowest level against the dollar since the 20th March.
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Last week figures released by the Department of Commerce showed that the U.S economy grew more than first thought in the final quarter of 2012, with the outlook in the states seemingly improving sterling could well come under further pressure in the next couple of days. On Friday we will see the latest job numbers from the U.S and they always tend to cause some market volatility. Last months figures came in much high than forecast and prompted cable to fall by nearly two points in a matter of minutes and if we see some positive numbers on Friday we may witness a similar drop.
Tomorrow (Thursday) is the most important day of the week in terms of data for the UK. Tomorrow morning will see the Bank of England (BoE) announce their latest interest rate and quantitative Easing (QE) decision and the result could impact the value of the pound. I think it is unlikely we will see the BoE change interest rates but if policymakers opt to increase the current QE programme we could see a drop in exchange rates.
With so much attention on the UK and whether we will fall into another recession I expect to see the uncertainty in the currency markets continue over the next couple of weeks. If we do fall back into recession (which I still think is likely) I would expect exchange rates to fall back into the $1.40's
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