UK economy may provide US Dollar boost

Overall, Sterling has seen a relatively strong week over the last five days, being boosted by comparative strength in the UK economy. The major news this week was, of course, the release of UK unemployment figures.

The figures show that unemployment in the UK rose by 28,000 in the 3 months leading up to Janurary, with female and youth unemployment being especially large. However, as a clear indicated of the unprecedented times we live in, the figures released proved to be positive for sterling, due to the fact that this is the lowest rise in unemployment for almost a year. However, the fact that unemployment is still rising, as well as financial bodies discussing reducing the UK’s credit rating, stopped sterling’s gains against the Euro this week from being too large.

The Eurozone itself had had, as is expected by now, a rather poor week. Fuelled once again by Greece, there is now a concern of the debt crisis spilling even further beyond Hellenic borders. This will likely increase the value of both the dollar and sterling against the single currency, giving us improved commercial exchange rates for transferring both US dollars and pounds into Euros, giving us a month-high for exchanging pounds.

Certain analysts are unsure of sterling maintaining this strength against the Euro in the next week. These concerns are primarily fuelled by the budget announcements due on Wednesday 21^st, although it must be pointed out that budget announcements generally cause disruption in the exchange rates, despite the results. Although we should anticipate sterling dropping in value against the euro by a small amount in the hours or days leading up to the announcement, with a possible boost afterwards. It has been publicised this week that a possible point in the budget would be to cut the 50p top rate of income tax.

In a letter written to the Daily Telegraph at the beginning of the month, 500 leading businessmen approve of the idea to scrap the 50p rates, accusing George Osbourne of being something of a miser by putting politics before economics. This indicates that sterling will, at least, see minor growth against the euro if the plans go ahead. We are likely to hear more likely points of discussion prior to Mr Osborne’s official announcements on Wednesday, at which point sterling should stabilise.

Sterling has also come into conflict against the dollar this week. Monday saw strong US employment data bring the American currency to a 7 week high against the pound.  However, on Friday we saw the dollar’s rally against sterling falter somewhat, allowing the pound to gain some strength. Anyone looking to transfer sterling to dollars should be aware that this strength is unlikely to last due to concerns over the state of the UK economy, and the dollar’s continuing strength against the yen, therefore they should look into doing the transfer sooner rather than later.

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