This Pound Sterling forecast discusses today's UK inflation data and its potential impact on a rise in the interest rate. It also looks at the outcome of Theresa May's dinner with EU leaders last night.

The below table shows the market movements for a number of currency pairings in the last 30 days:

Currency Pair% ChangeDifference on £200,000
GBPEUR3.2%€7,140
GBPUSD4.3%$11,300
GBPCAD2.5%$8,200

Inflation data set to determine the next move for Sterling

Today could be an extremely influential one in deciding the direction for the Pound over the coming weeks, with inflation data for September being released this morning at 09.30, followed by a speech from Mark Carney at 11.15. The Pound had gained some strength through September to move away from an 8-year low against the Euro and this was based on comments from the Bank of England that there could be an interest rate hike in November, in an attempt to bring inflation back down towards the Bank’s 2% target.

This morning’s data could be a determining factor in how the Bank act in their monetary policy decision in the first week of November. If inflation shows a figure of 3% or higher then I believe that the Monetary Policy Committee will have no choice but to raise interest rates in an effort to bring inflation back in to line with wage growth and therefore making it more affordable for the average household to live. If that is the case, we could see the Pound rally throughout the course of today as investors and speculators begin to bet on a rate hike taking place.

On the other hand, if the data goes in the opposite direction and highlights a slowdown in the rise of prices I believe that we could see a significant fall in the Pound’s value today, potentially below 1.10 and 1.30 against the Euro and Dollar respectively and therefore making a foreign currency transfer more expensive.

Will Carney give an update on when to expect a rate hike?

Mark Carney, Governor of the Bank of England, will be speaking later on this morning and the Pound’s value could hinge on any of his comments, depending on which way this morning’s inflation data goes.

Bank of England Interest rate update

As such, whether buying or selling Pounds at the moment, I personally believe that moving sooner rather than later to take the uncertainty out of the market may be the best option, especially as the next direction for the value of the Pound is on such a knife-edge.

In my opinion the down-side risk is more prevalent than any potential upside gains, especially for anyone selling Pounds, so a forward contract to secure your rate today could be a sensible and cost-saving move.

Looking further ahead this week and tomorrow we have unemployment data and average earnings figures. As mentioned previously, average earnings are way below inflation and are also taken in to consideration with regards to interest rate changes so could prove influential based on the current climate.

Theresa May flies to Brussels

With Brexit talks having hit a deadlock between the UK and EU over recent weeks, Theresa May flew to Brussels last night and had dinner with EU leaders Michel Barnier and Jean-Claude Juncker in a bid to end the stalemate and try to get talks back on track.

We have seen the Pound make some gains against the Euro this morning, with the latest reports from last night’s dinner suggesting that talks were ‘constructive and friendly’ and that they should help negotiations to ‘accelerate’ in the coming months. If Sterling is to enjoy any longer-term strength then the progress of Brexit talks is extremely important, so if talks can advance from here then this could take some of the pressure off the Pound.

For a further update on how current or upcoming event could affect Pound Sterling exchange rates, call our trading floor on 01494 725 353 or email me directly at rjh@currencies.co.uk.

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Exchange rates on this page are interbank rates and indicate where the market is trading to show the performance of a currency pair. They are not indicative of the rates which we offer. The information on this web site is provided free of charge for information purposes only. It does not constitute advice to any person on any matter. Foreign Currency Direct plc. ("FCD") makes every reasonable effort to ensure that this information is accurate and complete but assumes no responsibility for and gives no warranty with regard to the same.