Foreign Currency Exchange

Last week the dollar continued to strengthen against the pound, with the rate dropping from a high of 1.9255 down to a two-year low of 1.8620, clarifying that the days of 2 dollars to the pound are almost certain to be over.

We have now seen a swing in excess of 5% over the last few weeks, driven by both Sterling weakness and dollar strength. Bank of England governor Mervyn King warned against reduced growth and rising inflation in a statement last week, whilst the US economy has been buoyed by a reduction in oil prices, and encouraging employment and sales figures, which were significantly better than expected.

The outlook for the next week is somewhat uncertain, with some analysts predicting the pound will continue to weaken against the dollar, driving the rate down further, with others suggesting that the rate will return towards the 1.90 mark as city investors sell to take advantage of their short term gains.

Due to this uncertainty, investors may want to look to a Forward Contract if they anticipate buying dollars in the short to medium term future, as this allows you to insure against any further falls in the market.