UK inflation data boosts the Pound

Sterling received a timely boost yesterday, with UK inflation data coming in above market expectation. Despite levels remaining relatively low and a long way from the government’s target of 2%, the official readings helped GBP gain some traction against the EUR, USD & AUD. With so much uncertainty surrounding the UK economy at present any positive readings are welcomed by those clients holding GBP, who have had to watch the Pound’s value disintegrate over recent weeks.

Inflation levels have been the cause of much debate and as touched on by colleague Joshua Privett in yesterday’s report, they are a key market trigger for investors. Given their relevance in terms of the health of the overall economy, this positive reading may help to alleviate some of the pressure that has been building on Sterling over recent weeks. How the Bank of England (BoE) will look to counter any aggressive rises in inflation is yet to be debated but for now the small improvements seen are likely to give GBP some much needed market support.

UK economic outlook – Brexit fears yet to subside

Despite Sterling finding some support yesterday the overall outlook has been one of uncertainty of late. The Pound has stuttered ever since the UK’s decision to exit the EU and whilst we have no clear indication of when and how we will facilitate our Brexit, it certainly looks as if it will not occur until at least late next year, if not beyond. This may ultimately be of benefit to those clients holding GBP, as the markets will no longer be solely driven by this scenario and instead investors will look towards economic data and short-term forecasts before they determine Sterling’s next move.

Personally I am of the opinion that Sterling will find a foothold sooner rather than later and we should get some protection around the current levels. We still remain well above the lows of 2008 and whilst it is likely that the longer-term Brexit outlook will restrict any aggressive Sterling advances above 1.20, I don’t believe it is all doom & gloom as some analysts are predicting. Any client holding GBP should be aware of the pitfalls they currently face and it may be wise to protect themselves against a negative market by utilising one of our forward contracts, which are in place for situations such as this. They can give you piece of mind during a turbulent period and allow clients to budget on their foreign property and asset purchases, helping to remove the fear of further market drops.

Looking ahead this week and we have a couple of key economic data releases. Today we have the latest employment data for the UK, including the official unemployment rate. With last month’s figure of 4.9% expected to remain unchanged, any deviation from this is likely to cause additional volatility for the Pound. Investors will also be keeping a close eye on Thursday’s Retail Sales figures, which are expected to show an improvement on previous.

Whilst economic releases are having some impact on Sterling, Brexit continues to pressure its value and will likely continue this trend until some clarity occurs. If you need to make a currency exchange in the mean time, I would recommend calling our brokers today on 01494 725 353 to discuss your options.

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