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No stopping the US dollar

Published: 28 Jun at 11 AM Tags: Pound Sterling, Dollar Exchange Rate, UK, Economy,

The US dollar has now risen against the majority of the 16 most actively traded currencies for 7 straight days.

The catalyst yesterday were comments from officials at the US Federal Reserve who tried to calm international investors by emphasising that the Fed’s bond purchase program will not be stopped until the economy strengthens.

The markets were rattled last week when Fed Chairman Ben Bernanke indicated that the Fed could start scaling back its extraordinary support of the economy by the end of this year.

William Dudley, president of the Federal Reserve Bank of New York, said: "If labour market conditions and the economy's growth momentum were to be less favourable, I would expect that the asset purchases would continue at a higher pace for longer."

In the UK, data showed that UK house prices rose again in June, this time by 0.3% according to the latest data release from the Nationwide building society. The rise was put down to the government's ‘Funding for Lending’ Scheme.

Data showed that the annual rate of price growth is now at its fastest since September 2010 at 1.9%. The increases means that the average house in the UK now costs £168,941.

Nationwide tempered its report, saying there were few signs the housing supply was improving.
Robert Gardner, Nationwide's chief economist said "Demand for homes has been supported by further modest gains in employment, as well as an improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures, such as the Funding for Lending Scheme. Signs of a modest improvement in wider economic conditions may also be playing a role in boosting buyer sentiment."

Meanwhile, data from the Office for National Statistics (ONS) showed that the UK economy did not after all experience a double-dip recession at the beginning of 2012. Updating its historical data, the ONS said growth was flat in the first quarter of 2012 as opposed to the earlier estimate of a 0.1% contraction.

However, the ONS also announced yesterday that the UK recession in 2008 was deeper than previously estimated. UK Gross domestic product (GDP) during that time is now estimated to have dropped by 7.2% from peak to trough, against the 6.3% fall previously recorded.
Analysts said the fact that the UK had fallen deeper into recession than previously thought meant it had further to go to recover lost ground.

This pressurised the pound as it increases the likelihood that the Bank of England may step up its bond buying quantitative Easing program once Mark Carney replaces Sir Mervyn King as Governor next week in an effort to promote economic growth in the UK.