USD/GBP Rate & Comments for 13th May 2010

USD/GBP – 1.484

After a strong start to the day following the formation of a new government, sterling fell against the US dollar and euro. The pound hit a low of $1.4821/ £1 after opening above $1.5040/ £1. Against the euro, sterling fell from a high of 1.1830/ £1 to finish the day around the 1.17/ £1 mark. The reversal in fortune was as a result of yesterdays Bank of England inflation report, which predicted that inflation is likely to undershoot the 2% target over the next 2 years with interest rates likely to remain at record lows of 0.5% as a result. The initial optimism that boosted the pound following the announcement of a new government faded following the report, as many traders realised that the UK has a hard road ahead of it to clear the deficit which is currently running at 11% of GDP. In addition, despite the unemployment claimant count falling by 27%, unemployment rose to the highest level since 1994. The optimism of the election is likely to fade further (as we saw in the USA following the election of Barack Obama) and as a result it would be worthwhile looking at making any payments now before the pound sinks any further. Out today we have trade balance data, which can occasionally cause large movements if it comes in better or worse than expected. Call in now for a live exchange rate.

In the USA, today saw a marginal widening of the trade balance, but this had little effect on the US dollar which continued to strengthen against the pound throughout the day. One analyst suggested that with the scale of spending cuts, tax rises and low interest rates in the UK, we could see sterling hit $1.40/ £1 over the summer. The main data out today is US unemployment claims which are expected to drop marginally which is encouraging. In addition, there is monthly retail sales data which is expected to show an improvement and Fed Chairman Ben Bernanke addresses the Senate. Get in touch now – especially if you need to buy US dollars over the next few months.

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