This Pound Sterling update examines factors that could affect GBP exchange rates this week, including UK Inflation and Unemployment data, along with the Bank of England's interest rate decision. The table below shows the market movements for a number of currency pairings on Friday:
|Currency Pair||% Change||Difference on £200,000|
Inflation is a major concern amongst investors at present. Consumer Price Index (CPI) data is due out tomorrow morning and could cause movement in the Pound's value. CPI is a measure of price movements on a variety of good and services. It is a key measure of inflation. Economists have been predicting rapid rises in inflation since Brexit was announced. The rise did not come through as quickly as expected, but we did see a considerable increase earlier in the year up to 2.9%.
There were rumours the Bank of England (BoE) would hike rates should the rise continue. The last results saw a slight drop to 2.6%.
Rises in inflation are only healthy if average wage growth remains at similar pace. At present it is not, dwindling at 1.8%. Average earnings figures will be released on Wednesday morning so this could also have impact on Sterling. I am of the opinion a rate hike is not the solution to the inflation problem. The increase in Inflation is a direct result of Brexit. The weak value of the pound is causing imports to become considerably more expensive and UK businesses are passing on these price increases to the consumer. Some business are purchasing there currency up to a year in advance for fear of further falls following predictions from Citibank, Morgan Stanley, HSBC and J.P Morgan that we could see parity on GBP/EUR by the end of the year.
A rate hike from the BoE may cause a spike in Sterling value but I doubt it would be sustained. In order for the problem to be rectified we need a stable government and clarity on Brexit, both of which I feel are not on the horizon short term.
Unemployment Data is released on Wednesday along with the claimant count and if the figures come in away from expectations this has the potential to alter the value of the pound.
On Thursday we have the UK interest decision. I would be surprised to see any change, but inflation data could influence how the Monetary Policy Committee (MPC) vote. The MPC consists of eight members and each member votes on whether to implement a change to interest rates. If there is a change in the vote from the previous month the markets usually react. Be aware of this event if you are selling Sterling short term.
Following the decision we have the BoE minutes, where monetary policy is discussed if there is any indication of future changes to monetary policy there could well be market reaction.
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