Sterling’s love letter from the currency markets lasted until Valentine’s Night but no further. A solid week of gains that had seen GBP/EUR strengthen by 2% over eight days came to an abrupt halt this morning with the inflation figures. On the plus side, the falls have not taken away all the past week’s gains.
Prices fell by 0.6% in the UK in January, to an annualised figure of 10.1%. Core inflation (with fuel and food taken out) fell to 5.8%, much to the surprise of market analysts who had predicted no fall at all.
The result so far this morning has been the pound falling by over half a cent against the euro in the past hour or two, and a little more against the US dollar.
Following on from yesterday’s excellent news on unemployment (falling) and earnings (still rising, now faster than core inflation, at least), all looks positive for the UK economy, which was revealed last week not to be in recession, according to economist’s strict definition.
So, why has the pound fallen this morning, to the extent that a €200,000 property somewhere in the Mediterranean costs precisely £1,000 more than when your alarm clock went off at 7am?
The answer is that the holders of sterling assets enjoy interest rate rises, and the data over the past few days suggest that there is less need for them. The Bank of England is more likely to turn ‘dovish’ in its next interest rate setting decision on 23rd March. Hence, a sell off of sterling this morning.
Of course, 23rd March is a long way off and much can change before then. Against the euro, sterling is still 0.33% stronger than this time last week, so to lock this rate in, or make a spot payment today in case of further falls, call your trader on 020 7898 0541.
As ever, you have the chance to talk through your options and have a frank discussion with an experienced trader on your best approach. Not every FX firm or app offers that, so if you have a friend, colleague or family member who is making a payment overseas, or receiving money from abroad, why not recommend us?
Do that before 31st March and if they make a trade we’ll credit you both with £50. Just click the link here.
