For anyone trying to work out which way the pound or any other currency will go based on data releases, this has been a confusing morning so far.
Traditionally, if inflation rises, so does the case for interest rate rises and so, therefore, increases the value of your currency.
This morning the UK’s inflation rate was revealed to be a new 41-year high of 11.1%, rising by 2% just in October. Of course, there are different measures, and the core inflation rate, without energy and food, remained at 6.5%. Nevertheless your expectation might have been that sterling would rise this morning further than it has.
It looks like inflation and interest rates have reached a tipping point, and they are now damaging the economy so far that they outweigh the advantages of getting a better return on sterling deposits.
Rather than worrying about daily changes, it might be better to take a longer view on currencies. Against the US dollar, sterling is 4% up on last week but around 5% down on the five year average. Against the euro, sterling is precisely where it was this time last week and exactly on the five-year average.
So securing a rate today via a call to your trader on 020 7898 0541, then being able to continue with your plans without worrying about further changes, can make a lot of sense.
Following the drama of the mini-Budget, the rate against the euro has been fairly stable as chancellor Jeremy Hunt has tried to create an impression of moderation and calm protection of those on lower incomes. Whether you’re convinced or not, the pound to euro rate has stabilised somewhat. Over the next few months, if and when recession arrives and starts to bite, the worry is more of a slow, steady drop in sterling towards the spring and summer.
You can avoid that risk affecting your plans by locking in today’s rate with a forward contract.
