The second of the week’s big data releases has hit the wires this morning, and the UK’s inflation figures were worse than the markets expected, at 10.1%.
That has boosted the pound to its highest rate for two weeks but – more importantly – up around the highest post-referendum levels once again. To lock that in with a forward contract, call your trader on 020 8003 4915.
Another measure of inflation released today, the retail price index, shows prices rising in the shops at 12.3%. Set against yesterday’s average earnings rising at 4.7%, it shows very clearly the squeeze on household incomes.
Despite this being bad news for just about everyone, especially savers, the pound has strengthened across the board this morning. Against the euro it is back close to the heights of the winter.
For anyone holding out to see if it will climb higher before locking in a rate, it might be instructive to see the kind of events that have sent the pound to its strongest over the past few years.
Today’s level has only been surpassed in the past six years due to four factors: very briefly, when the Conservatives won the 2019 election, briefly again when Rishi Sunak was made chancellor in February 2020 (a pre-Covid move the markets thought meant lots of extra spending). The strength was more sustained when the Omicron threat fizzled out in early January and then again when the war in Ukraine started.
Since then, driving the euro’s weakness has been the threat to European industry this winter due to President Putin switching off gas supplies. On the sterling side of the equation, the UK’s high inflation rate is fuelling currency investors’ hopes that the Bank of England will continue to raise interest rates.
If that all feels like a rather flimsy platform on which to base your hopes of the pound rising further, you may well be right. Any of those factors or metrics could be reversed virtually overnight, especially if there is an upset in the Conservative leadership election (Sunak is no longer seen as the big spending candidate).
So, once again, do consider locking in your rate.
If you have a friend or family member with currency exposure (i.e. the risk that their plans could be scuppered by changing rates), please do recommend our ‘low-risk’ approach to them. One lucky person who makes a referral this summer will win £2,000 in flight vouchers (T&Cs apply). Can you think of anyone?
