Inflation numbers bolster Sterling
The Pound has risen against the Euro and other currencies this morning, thanks to a higher than expected inflation reading. They key measure of Consumer Price Index (CPI) came in at +2.7%. The markets were only expecting a more modest 2.4% rise.
The higher reading increases the chances of the Bank of England (BoE) having to raise interest rates sooner than expected, and the Pound has risen as a result (the prospect of higher interest rates tends to strengthen a currency due to the higher return on offer).
This is a fresh 2 month high for Pound/Euro rates, and nearly 3 cents higher than 3 weeks ago when the mid-market rate was at 1.10. This equates to a saving of £5,500.00 on a typical overseas property purchase of €250,000.00.
Brexit news still likely to dominate price movements
Today we saw economic data releases affect the Pound, which in times gone by has usually been the main factor that affects exchange rates. In recent times of course, it has largely been Brexit developments that have moved the Pound.
This is likely to continue to be the case for the coming months. Most of the gains in the last few weeks have been caused by the fact it looks like progress is being made with Brexit negotiations. For example Michel Barnier looks set to improve its offer over the Irish border, which is one sticking point that has caused talks to become stuck.
Later today at a summit in Salzburg, Theresa May is expected to warn the EU that they cannot keep demanding things that are unachievable. With only 6 months to go until the UK leaves the EU, time is running out to reach an agreement in various areas.
It is expected that there should be a full agreement with regards to the UK’s withdrawal and future trading relations by November. If this proves to be the case, then I would expect the Pound to rise further against the Euro. However if progress continues to be difficult and we edge towards the November deadline without agreement, the Pound is likely to relinquish the gains it has made in recent weeks.
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