By Simon Eastman
Yesterday we saw some respite for the Pound, as it managed to rally against the Euro to some of the best levels seen in two weeks. The primary reason for this is fears that oil prices rising will increase UK inflation, which likely means the end of the Bank of England’s interest rate cutting policy. No further interest rate cuts, which might have been welcome by the rest of the economy, is Sterling positive, as it will likely attract further investment in the UK. As a result, the Pound pushed up against the single currency.
With the war in the Middle East raging on, the US Dollar has seen strength, as it becomes the investor safe haven of choice, rallying against the Pound and Euro. Yesterday we saw a 1.5 cent uptick against the Euro to some of the best trading levels seen this year.
The problem for the single currency is concerns over the flows of natural gas as the war continues, and with Europe being one of the biggest importers, the squeeze in supply will mean higher costs and higher inflation. For the European Central Bank, who seemingly had inflation under control and had halted their monetary policy program of interest rate cuts, higher inflation is a real nightmare, as the lower interest rates it has been able to maintain, might need to be raised to combat increased inflation. Increases in interest rates will likely strengthen the Euro, pushing GBPEUR down.
In addition to this, the EU released its Consumer Prices Index figures yesterday, which all came in over expectations and further away from the target of 2 percent, adding further fuel to the fire.
For those with Sterling in hand and a Euro requirement coming up, beware that the volatility we will likely see as UK and EU inflation numbers are released and the central banks react, could be significant, and the gains we have seen in recent days, could very well be short-lived. As such, this rally could well be the best opportunity you have to make the most of your Pounds.
Today we have a raft of European services PMI data alongside January’s producer price index, giving further insight into the EU’s inflationary outlook. EU and US unemployment figures are also released in amongst an array of EU central banker speeches.
Expect further volatility today as markets digest the data and react to the evolving conflict in the Middle East, so stay in touch with your currency consultant here, to let us help make your money go further.