Following a reasonably quiet start to the week for Sterling exchange rates – Are things about to hot up? Read on to find out what could impact the Pound this week. The below table shows the market movements for a number of currency pairings in the last week:
|Currency Pair||% Change||Difference on £200,000|
This morning we have the release of key inflation data in the U.K where expectations are for the core inflation level to have risen slightly from the drop from 2.9% to 2.6% we saw last month.
Analysts are predicting a slight rise in inflation to 2.7% which may give the Pound an early morning boost, however do be wary that should the figure remain at 2.6% or even have dropped off again then we may see a sharp fall in the Pound once more.
Last month when it was confirmed that inflation had indeed dropped off the Pound lost ground against all major currencies, mainly due to the fact that a lower inflation level dampens the chances of an interest rate hike happening in the near future.
One of the ways to curb high inflation (where the Bank of England (BoE) target is 2%) is to raise interest rates, this then means that any time that inflation goes up there is more chance of the BoE preferring a hike and when inflation is going down it can lead to the chances of a hike decreasing.
With an interest rate hike being seen as positive for a currency and a rate cut seen as negative, even the slightest hint to a change in the future can move the Pound in advance.
Tomorrow at 09:30am we also have the release of unemployment data and it is expected that unemployment figures will remain at 4.5%.
As always any release that differs to expectations may lead to a volatile morning for Sterling exchange rates, the lower unemployment levels are the better for the Pound as it suggests more people in the U.K are now in employment.
Possibly just as important and released at the same time we have average earnings figures which will show whether the average earnings for individuals in the U.K have increased or decreased over the past month.
This is extremely important as the Bank of England will be watching these figures very closely. One of the issues that we have in the U.K at present is that inflation is rising at a faster pace than wages are. The issue this presents is that essentially goods and services are going up in price faster than peoples wages are rising. This means people will have less money in their pocket to spend, leading to the economy slowing up as a result.
I still personally feel that the Pound is undervalued, however it does appear that the warnings that Mark Carney and the Bank of England gave out pre-referendum are now developing into actual facts. Unless we receive some really good news about Brexit negotiations or some really positive increases in our economic data I do worry that the Pound will continue to tread water whilst slightly sinking for the coming weeks.
A report on the BBC yesterday regarding the GBP/EUR exchange rate showed that currency strategists at the well-known U.S investment bank Morgan Stanley are now forecasting that GBP/EUR may move “beyond parity” for the first time ever in 2018.
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