At the time of writing the GBP/USD cross is trading at $1.2295 (mid-market), rising over half a cent from the London session opening price of $1.2234.
GBP/USD graph
Since Monday sterling has risen nearly 1.2% against the dollar as the UK economy continues to show its resilient side, with the pound has also being helped by the dollar weakening due to the uncertainty of the U.S. Presidential election.
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Figures this morning showed the UK Construction sector grew at a faster pace than forecast, with the PMI reading coming in at 52.6 against a predicted level of 51.9 (a reading over 50.0 indicates growth). Following yesterday's positive Manufacturing data, today's Construction numbers have helped the pound secure the gains it has made over the past forty-eight hours.
Is this the start of the pounds recovery?
At the moment I would say not yet. Markets are still concerned over the future of the UK economy due to the referendum result and the upcoming Brexit negotiations. Although all the data is still suggesting the UK economy is moving forward, I cannot see investors moving into the pound until they get some kind of reassurance over any exit deal.
What could influence GBP/USD exchange rates this week?
There are two major announcements coming in the next twenty-four hours and could cause some heightened volatility for the currency pair. This evening will see the U.S. Federal Reserve announce their latest interest rate decision which will be followed by at statement from Fed Chair Janet Yellen. I don't think anyone is expecting anything to happen tonight but if Ms Yellen hints at another rate hike in December, then we could see the dollar strengthen across the board.
Attention will then turn to the Bank of England (BoE) and their announcements tomorrow afternoon. The central bank will also deliver their interest rate decision, meeting minutes and rate votes but investors will be mainly focusing on the banks quarterly inflation report. It is widely expected the BoE will raise its inflation forecasts to allow an overshoot of its target due to the weaker pound.
If the BoE raise their inflation target it will fuel expectations that an interest rate hike could be on the horizon and almost certainly rule out another rate cut. If that were to happen we should see the pound increase in value and in turn push GBP/USD higher.
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