By Luke Dyson
We have seen a hard week for sterling across the board, mainly due to financial data releases resulting in GBP losing its footing and being driven down in price.
UK inflation was released earlier this week and was softer than expected, coming in at 4.6% compared to the 4.8% expected. So, still a way off the targeted 2% just yet.
However as a result of this drop it now confirms market expectation that the Bank of England would be in a position to cut interest rates by mid 2024.
Since this significant drop in inflation, it is predicted a drop of up to 80 basis points will happen across 2024, likely in three 25 basis point cuts starting as early as May.
Although some positive news, the Pound still remains under serious pressure moving forward against the Euro. Mainly due to the fact markets have bet on the UK seeing interest rates fall sooner and further than the Eurozone’s in 2024.
With this there are big concerns as Bank of England policy setter Megan Green states investors are not buying the Bank’s message that rates need to stay elevated for a long period still. This can lead to the market being significantly over priced and drop aggressively when rate decisions are to take place.
Although inflation has come down massively compared to the levels we have seen previously, it still has a way to go just yet. The GBP/EUR market is still under some strong pressures moving forward. This inflation drop doesn’t now mean sterling will begin to get stronger as it has a long road ahead with interest rate cuts depending on what happens in the future.
If you have an up and coming currency requirement please get in touch with A Place in the Sun Currency, if you’d like to consider taking advantage of the current rates. Or if not, at least to just get a strategy in place to limit your risk in these uncertain times. The markets could get a lot worse before they get better as sterling is yet to reap the rewards of the reduction in inflation.