UK CPI data holds key for short-term currency movement

This report will address the factors that are likely to affect exchange rates today if you are buying abroad or making a currency transfer. The table below shows the difference you would have received when buying £200,000 at the high compared to the low over the last month.

UK CPI Data key for Sterling Strength

Sterling rallied on Monday as the single currency looked to run out of steam after reaching a 3 – month high against GBP on Friday of last week. Continuing worries emanating from Spain and the Eurozone surrounding the bailout have cooled the Euro’s recent charge against GBP as Madrid appear to be paving the way for financial aid. Last week, Spain stated that it would ‘set clear deadlines’ for structural reforms by month-end, fuelling speculation that austerity compliance will lead to fiscal aid with its debt.

In a week that sees an abundance of data releases from the UK, perhaps the most important will be today, the Consumer Price Index (CPI) figures. The CPI is a key indicator to measure inflation and purchasing trends. Should the figure be lower than anticipated, expect to see short-term Sterling weakness that could push the currency down to 1.22/1.23. However, should the data be positive, the Euro could give back some of its recent gains as the currency looks to find new parameters.

On Wednesday, The Bank of England will release the minutes from their last meeting, which in the past has been a key indicator of future BoE policy. Particularly important, will be the number of votes both for and against the continuation of the quantitative easing policy, giving an insight as to how The BoE views the economy at present.

Historically, CPI figures have the ability to increase volatility in the currency markets and should the currency move unexpectedly, it is essential to ensure you have the most comprehensive risk-management strategy in place. Speak to your account manager today on 01494 725353 to talk through your options.

*Key Data Watch* Tuesday – 09:30 – UK Consumer Price Index

Could GBP strength be short-lived?

Sterling remained firm at a new 4 and a half month high against The Greenback on Monday as expectations remain that a new round of economic stimulus will continue to weaken the Dollar. The rate even climbed to 1.6273, just short of the 1.6301 52-week high.

My view is that GBP is currently overvalued against the US Dollar, and a retraction is somewhat overdue. With the spotlight now firmly on the UK after a poor week of data from The US, we could see the Dollar gain back some of its recent losses, as the fallout from QE3 settles.

Again, as with GBP/EUR, UK CPI data holds the key to potential shifts on GBP/USD as well. Should the data be bearish for the UK, I would expect the Dollar to rally and push Sterling back to around the 1.60 level, as similar to GBP/EUR, the currency looks for new parameters to settle. However, a slight contraction will have already been priced into the market and barring a very poor figure, I would expect the currency to stay put in the short-term, meaning it’s still a great opportunity for USD buyers.

With the rate offering USD buyers the best time to buy in 4 months, now is a perfect opportunity to secure a strong rate by utilising a forward contract. Call today on 0800 328 5884 to find the best contract option for you. Alternatively, please click here to read more on the different options Foreign Currency Direct can offer you.

RBA release minutes as AUD increasingly reliant on Mining

In data released yesterday, an MCA (minerals council of Australia) report revealed that Australia’s cost position was declining, with labour costs growing to one of the highest in the world. This is considered bearish for the Australian Dollar as their ability to carry out projects such as mining for the purpose of exporting commodities is key to the Australian economy. As well as these figures, the Australian resource minister stated yesterday that the commodity boom is ending.

Yesterday, the Reserve Bank of Australia released minutes that indicated scope for monetary easing. Monetary easing generally weakens a currency as its supply is increased. This morning we have already seen the AUD drop from 1.5493 to 1.5542.

With Commodity prices falling, and a slowdown in the Chinese economy, the AUD is under threat. Whether you are buying or selling, protect yourself from any adverse currency movements by talking to your account manager today on 0800 328 5884, to take advantage of a stop/limit order.