Tuesday 20th May 2014
Good afternoon. We’ve seen the Pound rise this morning, touching a 16 month high (€1.23) against the Euro again, after figures showed that inflation rose more than expected last month. Despite the increase in the CPI inflation measure, the rate is still below the Bank of England’s 2% target for inflation.
Last week, Bank of England governor Mark Carney said he expected the rate of inflation to remain below its target for the next two years; however the slight rise does slightly increase the chance of an interest rate hike in the UK, which is why Sterling rose.
We’ll get further information on this subject tomorrow morning, when the Bank of England releases the minutes to its recent meeting where rates were held. It will show what was discussed and how they voted. I don’t really expect anything new from the minutes and I would be surprised if GBP/EUR pushes through the €1.23 barrier.
We’ve seen that level tested a few times recently, but it would take some very impressive UK data to strengthen the Pound enough to push it through that level. Retail Sales numbers are also released tomorrow, and the figures are expected to show a 0.5% increase. A differing figure could affect rates further.
Eurozone stimulus still the focus for Pound/Euro rates
The Pound is quite strong at the moment, but the main driving force pushing Sterling/Euro higher is expectation on what the European Central bank will do to combat deflation. There has been lots of talk recently of possible stimulus measures in the EU. If this happens then the Euro could weaken further, which would cause GBP/EUR rates to go up.
However one ECB member recently said that asset purchases were “one of a string of measures being considered”, adding to the debate on what the bank is likely to do at its meeting at the start of June. If they do announce stimulus, expect Pound/Euro to push higher. If they don’t, then I think we’ll see rates drop back away again.
GBP/AUD has also risen in the last few days, pushing up to $1.82. A year ago it was down at $1.45 so the current levels are quite attractive to those that need to buy Aussie Dollars. Again this is partly due to a strong Pound, but also a weakening Aussie. One of the country’s biggest exports is Iron Ore, and we’ve seen a drop in the price of this commodity.
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