15th September 2010
Good morning. Yesterday the pound was quite volatile, falling after house price data before recovering after good inflation data. This morning the volatility remains; Sterling is down against the Euro, but up against most other currencies. We’ll look at this in a moment after the usual rate snapshot as at 08:30am:
- GBPEUR 1.1923
- GBP/USD 1.5516
- GBP/AUD 1.6517
- GBP/NZD 2.1145
- GBP/CAD 1.5962
- GBP/CHF 1.5541
- GBP/ZAR 10.953
- GBP/HKD 12.045
- GBP/JPY 132.12
- EUR/USD 1.3006
High inflation boosts the pound
UK Consumer Prices Index (CPI) inflation remained unchanged in August at 3.1%, according to the Office for National Statistics (ONS). It means the rate remains well above the Bank of England’s 2% target, and it brings to an end a three-month period during which the rate had been falling.
The unexpectedly high rate was boosted by strong rises in air fares, clothing and food. Fuel prices fell. High inflation increases the chance interest rates will rise, which in turn supports the pound due to the potential higher return. So, the figures boosted Sterling yesterday helping it recover against most other currencies.
Sterling falls this morning vs Euro
The Euro has made significant gains against Sterling and the US Dollar, following a revised growth forecast. As the UK and US enter a rocky period that may end in double dip recessions, the EU is actually doing much better now the dust has settled on the sovereign debt issues.
So, while the pound has gained against most major currencies, against the Euro rates are in decline. This will likely continue until we get some better than expected data (See below)
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Again a busy day for the EU and UK. There are various unemployment and jobless measures this morning. We expect the claimant count to be 4.5% and the ILO unemployment rate at 7.8%. The market has already priced in these forecasts, so if the figures are worse than these, expect Sterling to fall.
From the EU, various inflationary measures may impact on the future movement of interest rates, and could therefore push GBP/EUR down if the numbers are higher than forecast. At 10pm, there is an interest rate decision from New Zealand, where rates are expected to be left on hold at 3%.
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