Pound rises after BoE Inflation report

11th November 2010
Good morning. Sterling rose again against the euro yesterday, extending gains from the previous day after the Bank of England’s inflation report made a move towards quantitative easing in the near term unlikely. Rates have recovered well in recent weeks, and at 08:30am this morning things stand as follows:

  • GBP/EUR 1.1726
  • GBP/USD 1.6133
  • GBP/AUD 1.6085
  • GBP/NZD 2.0542
  • GBP/CAD 1.6131
  • GBP/CHF 1.5636
  • GBP/ZAR 11.062
  • GBP/JPY 132.76
  • GBP/NOK 9.4729
  • GBP/HUF 321.01
  • EUR/USD 1.3754

Bank of England Inflation Report

Yesterday we had the Bank of England Inflation report. They said that inflation is likely to fall back to it’s 2% target, and this means there is much less chance of Quantitative Easing. As a result Sterling rose throughout the day against most other currencies.

The report itself though wasn’t all positive. Governor Mervyn King said the recovery was likely to continue, but its strength depended heavily on developments in the world economy. Adding to the uncertainty are government cuts which could trigger a slowdown in construction, Mr King said, which has been a key driver in recent faster-than-expected economic growth.

Commenting on the report, the Institute of Directors agreed the economic outlook was currently almost impossible to read. “Uncertainty is written all over this report, and rightly so,” said chief economist Graeme Leach. “There are so many competing forces towards sustained recovery or recession, the economic models are overwhelmed.”

Summary

For the moment, there looks like no further Quantitative Easing for the remainder of this year. This has strengthened Sterling and rates are the best for some time.

It’s to do with the run of better data we have had of late;House prices rose, manufacturing output increased and the economy grew by 0.8%; double analyst’s forecasts. In addition, the Bank of England (BoE) decided to hold off another round of Quantitative Easing and have been quite bullish with their latest inflation report. The resulting strength means the best exchange rates to buy Euros in nearly 2 months, and the best US Dollar rate for 9 months.

Any bad news for the UK will tip the scales the other way and it wouldn’t take much to reverse the recent upward trend.

Today’s Data

US Markets are closed for Veterans Day and the only release of note is a report from the European Central bank. If this is positive, expect GBP/EUR to fall. If it’s negative, we could see some further gains.

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