Sterling strengthened by around 1% yesterday against both the euro and US dollar, following positive news on jobs and earnings in the UK. While it has largely held onto those gains, a mixed picture for inflation this morning has left the markets in uncertain mode. Those gains could easily be reversed.
The reason sterling moved upwards was, if the economy is still looking good and people are not losing jobs, but wages are rising fast with the potential to further increase inflation, then the Bank of England both can afford to continue keeping the pressure on inflation, and must, with large interest rate increases. Had the economy been suffering the Bank would be forced to ease up on rate increases.
This morning’s inflation data leaves matters unresolved. There was no sharp decrease as we’ve seen in the US and parts of Europe, but no increase either. You then start getting into which parts of the economy are still seeing inflation, and whether these are ‘second-round effects’ and it all starts to get complicated.
Keeping things simple, the good news is that you’re getting more euros and dollars for your pounds than yesterday, and GBP/EUR at least is back above the five-year average. Sounds like an opportunity to lock in the rate today?
You can do that with a call to your trader on 020 7898 0541.
We’ve just published, today, our new Quarterly Forecast, for January to March. It contains predictions from the major banks, and then we take an average. They’re really just guesses in many ways, but the analysis is fascinating and you can see what is coming up that might affect your exchange rate in the near future. Download it here and be better informed.
