By Tom Arnold
The last few months on the currency markets have been completely dominated by global inflation levels and the resulting efforts from the various central banks to combat those high inflation levels. Currency strength has been supported by high inflation, and therefore increasing interest rates, and currency weakness has been a result of lower inflation and therefore less need for interest rate rises.
Due to the ongoing high levels of inflation in the UK, and the Bank of England’s recent interest rate rise program, we have seen a strong Pound in recent months. The GBPEUR rate has been additionally aided by a recession in the EU, and in the case of GBPUSD this has been pushed further up by US inflation being one of the first and fastest to come down.
Last week we saw a big change to this trend with a surprise drop in UK inflation. The main CPI rate was due to drop to 8.2% but instead dropped to 7.9%. While not a massive difference, the fact it was further down has cast significant doubt on whether the Bank of England will need to act at next week’s MPC meeting to raise rates as has been anticipated, or whether they may choose to only raise by 0.25% instead of 0.5%. As a result, the Pound has dropped off significantly – over a percent against both the Euro and the US Dollar.
The week ahead will give us further insights into the interest rate/inflation merry go round with both the ECB and Federal Reserve releasing their interest rate decisions and CPI inflation data from both Germany and Australia.
Monday
EU Manufacturing & Services PMI
UK Manufacturing & Services PMI
US Manufacturing & Services PMI
Tuesday
US Consumer Confidence
Wednesday
Australian CPI Inflation
US FED Interest Rate Decision & Monthly Policy Statement
Thursday
EU ECB Interest Rate Decision & Monthly Policy Statement
US Jobless Claims
US GDP
Friday
EU Consumer Confidence
German CPI Inflation
With so much going on and such dramatic movement on the markets, make sure to stay in close contact with your A Place in the Sun Currency consultant to discuss how the movement is impacting your requirement and what your options are to secure your rate of exchange.