This GBP exchange rate update discusses factors that could impact the Pound's value, looking specifically at the upcoming Unemployment and Average Earnings data due this morning, and the continuing debate about UK interest rates. The table here shows the market movements for a number of currency pairings in the last 30 days:
|Currency Pair||% Change||Difference on £200,000|
UK unemployment figures are set for release this morning and they are close to their lowest seen since the 1970s. Typically with unemployment so low this would be encouraging for the economy involved, which in this case would be the UK. However, the real issue for the British economy is that of rising inflation which is currently sitting at 2.9%.
At the same time as the release of unemployment data we also have the latest set of UK Average Earnings due out at the same time. The expectation is for 1.9% for May so that equates to a 1% difference between inflation levels effectively meaning that the cost of living is rising whilst wages are struggling to keep up.
If the figures come in line with expectation or indeed see a fall then I expect this to cause a problem for the Pound vs all major currencies following the release.
As confirmed with yesterday’s market report credit card spending in the UK has been falling recently and therefore if Average Earnings highlight a concern then I think this could result in Sterling weakness which may create a very good opportunity to buy Sterling with a foreign currency so make sure you keep in close contact with your account manager who will be able to keep you updated with market movement.
Earlier this month the Bank of England (BoE) confirmed a 5-3 split in favour of keeping UK interest rates on hold. This was the first time in years that the vote by the eight members has been so close. The last time the Bank of England chose to move interest rates they cut the rate, which took place in August 2016, post-Brexit and the time prior to that was back in March 2009 when rates were also cut. With inflation rising this is causing some of the members to change their appetite and as the Bank of England’s target for inflation is 2% this is part of the reason for the recent change in bringing the topic of raising rates back on to the agenda. However, one of the member Kristin Forbes has now stepped down so the incoming committee member Silvana Tenreyo has not yet made her intentions clear.
Two members of the MPC spoke yesterday and both failed to reveal too much about where interest rates may be headed. Both Andy Haldane and Ben Broadbent failed to speak about monetary policy and economic outlook which led to the markets being disappointed as they expected more hawkish comments to have been made. Indeed, this has led to the Pound falling against all major currencies which highlights the importance of keeping in contact with your personal account manager.
Inflation is clearly becoming a real issue but whilst wages are slowing down and the issue of Brexit is becoming an ongoing issue for the British economy I think it will be difficult for the Bank of England to increase rates at any point this year. New jobs are being created but high inflation has caused a reduction in the disposable income of households and this has contributed to a slowdown in consumer spending.
However, if inflation does not come back towards the target and continues to rise then the Bank of England may have no choice but to increase interest rates. Indeed, whilst this uncertainty continues this is likely to weigh heavily on Sterling exchange rates.
For more information on how data releases could affect your currency exchange call our currency brokers on 01494 725 353 or email me directly at firstname.lastname@example.org.
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