In the run up to the official Gross Domestic Product (GDP) figures and positive UK data earlier in the week sterling rallied against the dollar to break through the $1.54 barrier to reach a fresh eight week high.
However, exchange rates could not maintain the highs we have seen over the last 24 hours and quickly slipped back towards $1.5350. Data released this morning (Friday) showed that the UK construction industry remained weak in February despite the sector growing by 5.5% compared to January.
The latest data will dampen hopes the UK will avoid the triple-dip recession. I know I have mentioned it a few times over the last few weeks but if the UK does contract in the first quarter of 2013 then we could potentially see exchange rates fall to the levels witnessed only a few weeks ago ($1.48).
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Further losses during trading today were limited as the U.S released their latest retail data for March, official figures showed that U.S retail sales had fallen across all sectors for the second time in three months.
So where do I see exchange rates in the next couple weeks.
I would expect the market to remain pretty volatile, if you look for peoples opinions you will see a range of forecasts from $1.49 to $1.56 in the coming months and just goes to show the uncertainty surrounding the UK at present. Once the GDP figures are released on the 25th I think we will see the market die down slightly as it will give us a better indication of things to come.
My opinion is that the UK is still looking down the barrel and even if we avoid the recession we could see the Bank of England either talk down the pound to help boost UK exports or look at further stimulus to try and boost the UK economy. Either of these actions could have an adverse effect on exchange rates and would counteract the positive news of the UK economy growing.
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