Inflation Above Expectation – GBP Exchange Rates

Consumer Price Index (CPI) figures released this morning have come out higher than expected. CPI is a leading measure of inflation in the UK and the year on year figure has shown that the price of goods and services had risen by 2.8% which as a result has seen Sterling exchange rates strengthen this morning. The Bank of England (BoE) are targetted to keep inflation at 2% so that fact that we are above this target level is good, however if inflation gets too high it can be negative for the UK economy as the price of goods and services is rising to much which can make goods unaffordable and therefore reduce the amount of money flow through the economy. So, in order to keep inflation in check a central bank such as the BoE can increase interest rates as this can theoretically slow inflation. So, with inflation higher than expectation the chance of an interest rate rise will gain momentum but realistically I still believe it is unlikely. The economy is showing such minimal growth that if the BoE hiked interest rates it could have a damaging impact on the economy as more people save money rather than spend and also the housing market could be adversley affected (as mortgages increase). So, this mornings news may simply be a short term spike so if you have an upcoming currency requriement make sure you speak to us today for the latest news.

Cyprus Banks Remain Close – EUR Exchange Rates

It seems like the issues in Cyprus are going to run on for some time as it has been announced that the Cypriot banks will be closed until Thursday as discussions surrounding the potential levy’s continue. The suggested levy would see people who have deposits in a Cypriot bank of €100,000 pay €9,900! This is the first time a European nation has proposed such a “tax” and the concern in the market at the moment is that should we see this go through then other countries, especially those facing challenging economic conditions will follow Cyprus’s lead. This could mean we see the likes of Greece, Spain and Italy trying a similar levy. All of this means that until this is resolved and we have some certainty as to what will happen in Cyprus the currency market is likely to remain volatile.

If you need to buy Euros or if you have to send money abroad make sure you speak to one of our currency brokers today so they can discuss your requirements and the options available to you. You can call straight through to the trading floor on 01494 849752 or alternatively email me directly on trh@currencies.co.uk