Sterling’s poor start to the week was reversed yesterday morning after UK inflation came out better than expected.
Sterling had come under some slight pressure on Monday after the inevitable announcement of when exactly the Brexit will be begin hit headlines, and although Sterling dropped slightly in the wake of the news currency markets were barely impacted as we were informed of the government’s intentions and timescales late last year.
Yesterday morning’s inflation figure had more of an impact on the Pounds value, and I’m sure that UK inflation will hit headlines once again throughout the year. It’s a data reading I think our clients with a Sterling currency requirement should pay close attention to moving forward.
In the immediate aftermath of the UK electorate’s Brexit vote the Bank of England opted to cut interest rates in order to weather the storm of uncertainty surrounding the UK economy.
There was talk of an additional cut down to a record low of 0.1% from its current 0.25% level but steeply rising UK inflation has turned the tables on this plan. As recent as last week one voting member of the BoE’s Monetary Policy Committee actually voted in favour of raising interest rates to counter the issue of rising inflation.
Early yesterday morning the annual figure for UK inflation was released showing an increase of 2.3% which is up from 1.8% in February. This puts the current rate above the BoE’s 2% target, and this boosted the Pounds value due to increased likelihood of an interest rate hike from the BoE to try and manage the rising levels.
GBP/EUR jumped almost 50 pips in the wake of yesterday’s update and the Pound was up by almost 1% vs the US Dollar at its high. Due to the Pound losing around 13% against the US Dollar since the Brexit vote the cost of petrol and other goods denominated in US Dollars have become more expensive, and I think the next move by the BoE will be a rate hike which will likely result in a boost to the Pounds value. It’s also worth noting that food prices recorded their first annual increase in more than 2 and a half years yesterday which also increases the chances of action being taken by the BoE.
The effects of the Brexit have arguably already been priced into Sterling’s value. With exchange rates relatively unmoved by Monday’s Brexit date announcement I think the worst of the Pounds troubles are over for now, and unless trade negotiations begin horrendously I’m personally quite optimistic regarding the Pound throughout 2017.
It’s quiet in terms of UK data for the remainder of the week which may help the Pound consolidate at its new levels (GBP/USD is at almost a 1 month high), but I think those with a Sterling currency requirement should keep a close eye on Thursdays Retail Sales Figures as they could also create swings within Sterling’s value depending on the outcome.
If youd like to be kept up to date with the latest market trends and how they could impact your buying or selling requirement, Feel free to email me at firstname.lastname@example.org and Ill be happy to assist you.
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