Gaining the best exchange rate can be achieved by understanding what is driving rates and the service of a specialist currency broker. The table below shows movements in just a month affecting Pound Sterling rates when buying £200,000:
|Currency Pair||% Change||Difference on £200,000|
Yesterday morning saw the narrative draw away from the ongoing election saga for a short period, providing relief to anyone holding Sterling. Inflation data hit the wire at 9:30am and showed a healthy rise in spending activity in the UK, with prices expected to be boosted by 2.9% now this year.
Not only does this reflect continued strong and promising consumer activity in the UK, a nice distraction from the concerns laden in currency markets following the election, this has key ramifications for financial policy in the UK, and therefore the Pound’s value.
Inflation rates are a key barometer which the Bank of England use to decide whether it is prudent to raise or lower interest rates for the UK. A high inflation rate, effectively a sustained period above the 2% target level, prompts them to step in and raise rates to control prices. The secondary effect is that a rise in rates makes the currency in question a tempting commodity and demand tends to skyrocket afterwards, sending its value in the same direction.
This is one of the reasons why the USD is currently sitting at decades long highs against the Pound given their two interest rate hikes in the past two years.
The reason why markets showed immediate excitement to the news yesterday is that we do not have long to wait until the next UK interest rate decision, it’s actually at midday tomorrow.
Each month the Bank of England release their interest rate decision, policy summaries and the minutes from their most recent meeting.
The key variable this month will be the vote split for a rate hike, and it seems set to be Sterling positive. Eight members will vote on whether to raise rates, keep them on hold, or cut them.
Last month only one voted for a hike, should anyone else be encouraged to join their ranks on Thursday, as seen in the past, the Pound should have a strong surge against other currencies that day. This inflation data makes this prospect more likely.
The Pound has also been the main beneficiary of positive developments for the Conservative Party in achieving their new government following a Hung Parliament. Progressive comments from Theresa May and some delegates from the Conservative back-benchers yesterday about support for her within her own party impeded Sterling’s falls from last week on Monday. Tuesday’s meetings with the DUP to conclude formal talks over the future running of their informal affiliation also brought similar positivity and calming language that an agreement was largely in place.
We still have a long way to go to forming a Parliament, beginning with today’s Prime Minister’s Questions which will see Theresa May facing an emboldened opposition demanding clarification on a few key issues surrounding the Brexit and her mandate.
For now, however, I expect Sterling to enjoy benefits from the economic sphere and a calming political frontier. So anyone planning to buy Sterling may wish to keep this in mind and contact your account manager on 0044 1494 725353 for a live rate of exchange whilst levels are so historically attractive across the board.
If you would like to discuss anything you have read in this report please do feel free to contact me directly at firstname.lastname@example.org.
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