Sterling has been becalmed since the start of the year, barely moving either way against the euro and only marginally more lively against the US dollar.
The reason is the well-signposted refusal of the Bank of England – or indeed central bankers from other countries – to move on interest rates. We will have an interest rate decision on Thursday, and while no change is expected, the markets will be looking closely at the voting of the nine-member rate-setting panel.
Their decisions depend on inflation levels, and we have a reading for inflation on Wednesday, the day before the interest rate announcement. Inflation has certainly been falling spectacularly in other countries. We used to be on a par with Italy, but Italian inflation is now at 0.8%, while the UK’s is only forecast to fall to 3.6% or so.
If it stays high on Wednesday, so might the pound. But that is a big IF. There is one thing we know about forecasts recently, that they are hopelessly inaccurate, with the old models apparently incapable of coping with today’s complex world.
So don’t rely on the pound staying strong against any other currency.
There is plenty to interest the markets elsewhere this week, with the US Federal Reserve also deciding interest rates. This opens another front for an end to sterling’s stability, as the pound is strongly influenced by global stock markets and these in turn are governed by US interest rates.
For anyone exposed to currency risk – either buying an expensive object abroad, depending on a fixed pension or other income, or about to transfer wealth – the next couple of days offer a critical window for you to contact your account manager and protect yourself from sharp changes in exchange rates. You can do that on 020 8108 5163.
