The Pound Dollar exchange rate (GBP/USD) is 1.6177. The Pound Euro exchange rate (GBP/EUR) is 1.1619.

March 8, 2011 - Written by John Cameron

STORY LINK The Pound Dollar exchange rate (GBP/USD) is 1.6177. The Pound Euro exchange rate (GBP/EUR) is 1.1619.

The Pound Dollar exchange rate (GBP/USD) is 1.6177. The Pound Euro exchange rate (GBP/EUR) is 1.1619.

Chinese policy-makers have spoken in the last 48 hours about the key role that controlling inflation will play in insuring that social order is maintained in China. Spiralling prices in the world’s second largest economy threaten reduce living standards for those surviving on fixed incomes and cause an erosion in the value of savings. Analysts suggest that this may cause the People’s Bank of China to allow the Yuan to weaken and to continue with their interest rate hiking cycle in order to control prices, which would in consequence threaten the global recovery.

The potential for China’s domestic policy to de-rail the worldwide economic upturn is accentuated by comments released yesterday by leading ratings agency, Fitchs, predicting that 2012 could see a Chinese banking crisis.

All of this means that while the US Dollar is currently under pressure and even during recent bouts of fear in the markets, failed to pick up significant safe haven support, this could easily change in the medium term. A double dip in global growth or a second major banking crisis would be likely to cause major shifts in funds by institutional investors into the safe haven of the US T-bill.

In the meantime, the Dollar continues to edge lower, with EUR/USD again touching above the 1.4000 level during yesterday’s session. Recent sessions have seen stronger US data, with Friday’s labour market figures showing that US unemployment had dropped for the third successive month.

Meanwhile in the UK, economic data has been less supportive for Sterling. Last night’s British Retail Consortium retail sales figure for February came out at -0.4% versus expectations of 0.7%, while the Pound continues to labour under the weight of last week’s disappointing service sector figures.

The GBP/USD rate is holding below 1.6200 today as it edges down from its 13 month high of 1.6344. Thursday’s Bank of England interest rate decision is unlikely to prove supportive to the Pound, so the near-term high for GBP/USD will become a strong level.

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TAGS: American Dollar Forecasts Euro Forecasts Pound Euro Forecasts Pound Sterling Forecasts