The story so far… two weeks ago the pound hit a 2½-year-high against most major currencies, based largely on the Bank of England being more cautious than other central banks re inflation and keeping interest rates high. However, soon after, comments from the Bank of England governor weakened GBP/EUR in its largest one-day fall for 18 months and it has struggled to reach those heights again.
But it’s not far off. Compared to this time last year, the pound currently sits 3.6% higher against the euro, 7% higher against the US dollar and 8% higher against the Canadian dollar.
What sent the pound down was, with two interest rate decisions left this year, the governor of the BoE saying that the Monetary Policy Committee (MPC) might need to be a bit more “activist”, in stimulating the economy by cutting interest rates. (The money markets chase higher interest and so a currency tends to move in lockstep with its interest rate).
But will the MPC cut rates when its primary role is to keep inflation down? This week there is a mass of data coming down the pipeline that could sway them either way, so it’s a week to be wary of.
Shortly this morning the most activist of the nine-member MPC will be talking, although based on recent history we can already assume that Swati Dinghra will be supporting interest rate cuts.
To maybe convince the others, tomorrow there will be unemployment and earnings data. The number that the MPC will be looking most hard at is average wage increases, still running at over 4%. Then on Wednesday there is inflation and on Friday retail sales.
All of these could affect your exchange rate, so if you have a large transaction coming up to fix today’s rate and get that valuable peace of mind, call your account manager on 020 8108 5163.
