By Matt Boyle
The Pound is close to a 6-month high once again as markets and traders alike view higher inflation pushing back the next Bank of England interest rate cut. Yesterday’s British Retails Consortiums (BRC) report showed shop price inflation rose from 0.7% in December YoY to 1.5% for January YoY. Additionally, food price inflation rose from 3.3% in December to 3.9% in January.
These figures suggest overall inflation could be on the increase – moving away from the Bank of England’s 2% target and so is likely to stave off interest rate cuts in the short-term. This has allowed the Pound to gain some traction across the board as a higher interest rate will maintain foreign investment interests for longer, and help to prevent an exodus of investors from the Pound looking for higher rates of return for their money.
With most economists previously believing UK inflation would begin to drop sharply at the end of last year the Pound was priced accordingly. Following the BRC’s report though, this has allowed the Pound to rise again, now closing in on a 6-month high against the Euro.
The Bank of England meet again on the 5th of February and whilst there is little likelihood for a cut, the meeting minutes and monetary policy vote will provide some clues as to the BoE’s future stance. Perhaps more importantly though on the 18th of February the UK headline inflation figure is released, which will determine the course of the Pound in the coming months. Buyers may well like to take advantage of current rates ahead of these dates should the BoE or inflation surprise. Sellers may want to remove risk of a Pound that has regained buoyancy and appears it could be on the up, set against dropping inflation in Europe and a Euro with an already lower interest rate.
Elsewhere in the World political un-rest in the US, coupled with economic damage from Storm Fern has hurt the US Dollar with it losing ground across the board, but noticeably against the Pound and Euro in recent weeks. With an ongoing struggle between President Trump and the Federal reserve around Government control and interest rate cuts, expect more volatility in the Greenback in the coming weeks and months. Data-wise we have the Fed Interest rate decision and monetary policy statement released later today. Those with Dollars in hand might be well advised to remove the risk of a further slipping greenback by utilising a forward contract option allowing you to fix the exchange rate now and protect the cost for your upcoming transfer. Whilst the US Interest rate decision dominates the remaining eco-stat releases of the week, US Production data, European and German GDP round it off data-wise on Friday, and all could move exchange rates.
Should you have an upcoming transfer to make speak with your Currency consultant today for some friendly guidance and to help make your money go further.