GBP Exchange Rates and UK Interest Rates

It has been confirmed this morning by the UK coalition government that take home pay in the UK is rising and that except the richest 10% of people  people saw their net pay increse by at least 2.5% which is more than inflation. This is a really key point as currently one of the main arguments the Bank of England (BoE) has against raising interest rates is that they need wages to be rising otherwise it could really hamper economic recovery. So, now we have heard that take home page is up there is even more pressure on the BoE to raise interest rates. However, yesterday Governor of the BoE Mark Carney stated that there is no need to raise interest rates and that falling unemployment was just one indicator and admitted that the Bank didn’t expected unemployment to fall to 7% for another 2 years. To me this whole issue has raised a question about Carney’s forward guidance we are soon going to fall below 7% unemployment in the UK and interest rates, according to Carney’s comments, will not be risen. Now many will argue that the forward guidance was a good aid for the market and helped bring back some positivity to the markets however others may question whether the fact that Carney and the BoE will not follow through on their forward guidance has devalued any further forward guidance. Only time will tell. Today in Davos we can expect a speach from Mark Carney which could shed more light on the future of UK interest rates and therefore could have a significant impact on GBP exchange rates.

CAD Exchange Rates

Later today we have some key economic data from Canada with their inflation figures in the form of Consumer Price Index (CPI) released at 13:30. Inflation is currently a hot topic across the globe and in Canada we have recently seen the CAD weaken dramatically over the course of this week and this is due to concerns that inflation is falling and therefore interest rates need to be cut. So, if the figure today confirm this we could see the CAD weaken yet further.

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