Wednesday 12th November 2014
Good morning. Earlier this week I warned that today would be key for Pound/Euro rates, and that if the Bank of England inflation report forecasted low inflation, then Sterling could drop off. This is exactly what has happened, and despite an initial rise in rates following good UK employment figures, we soon was the rate drop by over 1 cent as you can see from the chart below:
UK Employment gives the Pound a (temporary!) boost
The day actually started well for the Pound, as figures showed that UK unemployment fell for the 18th consecutive month, beating expectations. The numbers also showed that one measure of average earnings growth beat inflation for the first time in five years. As the numbers were better than the markets were expecting, the Pound rose to above €1.28, getting near 6 year highs as you can see from the graph above. But the gains were short lived, as we will see in a moment….
Bank of England inflation report brings Sterling crashing back down.
Within an hour of the spike to €1.28, GBP/EUR figure plummeted by cent to €1.27. The reason for this was inflation expectations.
At 10:30am the Bank of England gave its inflation report. Inflation is key to when interest rates in the UK will rise. Higher inflation lends itself to higher interest rates, and the expectation of this has been driving the Pound up this year.
However today the BoE governor Mark Carney stated that inflation could fall below 1% in the next six months, due to sluggish growth in the European economy, and other downward pressures. Governor Mark Carney also said he did not expect inflation to reach the targeted rate of 2% for three years. The Bank also cut its prediction for UK economic growth in 2015 to 2.9%.
All of this means that an interest rate hike in the UK is a long way off, and the Pound weakened accordingly.
Is a weak Pound what the BoE wants?
In recent posts I have suggested that the strong Pound is not favoured by the Bank of England. It affects our exports and could harm our recover. For this reason I have warned recently that the BoE could take the opportunity to weaken the Pound if they can, and today that’s exactly what we’ve seen. Just a few comments from the BoE governor and the Pound has fallen again, repeating it’s trend of climbing to around €1.28 before dropping back down.
Getting the best exchange rates
As you can see from my market report today, there are lots of risks to Sterling, and many different things that are pulling the rate up and down. Getting the best rates is partly getting your timing right, and also having a good currency broker to inform you what is happening in the market, and to help source you a better rate of exchange than the banks.
This is how I can help you with your currency exchange, so if you need to convert once currency to another, then get in touch with me for a chat about how I can assist you and the rates I can achieve. Even if you already have a broker, it can do no harm to compare our rates as even a small difference in your exchange rate can represent a saving of thousands of Pounds when converting a large sum.