Sterling Exchange Rates Await Inflation Figures

Following yesterdays inflation figures we saw Sterling exchange rates plummet meaning we are now over 2 cents down compared to the high we saw last Thursday when the European Central Bank cut their interest rate to 0.25%. Today inflation is likely to be back in the headlines as the Bank of England (BoE) release their quarterly inflation report which could well see Mark Carney, Governor of the BoE, be rather pleased with himself as inflation is now closer to their target level of 2%. The inflation figure yesterday effectively reduces the chances of an interest rate hike being brought forward and positive comments about inflation remaining close to target and not rising out of control could well see Sterling lose yet more value today. The reason behind Sterling depreciation yesterday was because theoretically Central Banks such as the BoE use a rise in interest rates to combat rising inflation as an increase in interest rates should encourage more people to save their money rather than spend and then because less money is being spent retailers cannot increase their prices by as much for fear of reduced sales. So, the fact that inflation appears to be staying close to the BoE target means the Bank do not need to increase interest rates sooner than currently expected. An interest rate hike can increase the value of a currency as high levels of interest can lead to increased demand in the currency and therefore as demand increases so does the value, we even see just the chance of an interest rate hike lead to a spike in the currency markets and as we saw yesterday the reduced chance of an interest rate hike can lead to Sterling weakness.

UK Unemployment Falls

It has been confirmed that the UK unemployment has fallen to 7.6% which is down 0.1% from last months figure and is also lower than expectation. With Mark Carney stating that for interest rates to change we need to see unemployment fall to 7% so the markets are moving in the right direction although it is slow progress to the eagerly anticipated 7% level. So, with inflation not rising out of control and unemployment only very slowly coming back down the chance of an interest rate hike is seemingly still a long way off in the distance. As a result I would expect Sterling to remain under pressure for the forseable future and hold at around these current exchange rates. Therefore, I think that should we see any spikes over the coming weeks or months should be made the most of by buyers, so if you would like to be kept informed of these spikes please call one of our experienced currency brokers on 0800 328 5884 or alternatively email me directly on trh@currencies.co.uk