Today’s inflation figures, showing prices in the UK rising at 0.8% in June and 9.4% in the year to June, have caused the pound to fall against the euro and US dollar this morning. That’s because despite being at its highest for 40 years, inflation is slightly less than had been predicted.
If you feel like today is the right time either to lock in the rate before it slips further or, if you’re buying sterling, to take the improved rate this morning, do call your trader on 020 8003 4915. and discuss making a trade today or locking it in for the future.
Last night, before today’s data, the governor of the Bank of England said that on 4 August it was likely to increase interest rates by 0.5% in an effort to beat inflation. So that is now the expectation and any deviation from that course will send the pound up or down against the euro.
The single currency itself is governed by the European Central Bank, which is similarly wrestling with the inflation-vs-growth conundrum and making their interest rate decision tomorrow. However the ECB has said it will raise interest rates there by only 0.25% (which will still leave them at minus 0.25%). Because it is offering a lower return on euro deposits than the Bank of England is on sterling deposits, the pound has remained relatively strong.
It is this expectation of larger interest rate rises here than in the eurozone that has kept the pound buoyant for so long. Hence the lower than predicted data this morning will have started to raise uncertainty in the markets,
In fact the pound this summer has stayed remarkably strong. At this point in 2021 the interbank rate GBP/EUR rate was below €1.16, in 2020 it was €1.10, and in July 2017, 2018 and 2019 it was €1.11 to €1.12.
There is some evidence that it could return to those kind of levels. This will be a key week, with a vote on the future economic and political direction of the country about to be decided by 180,000 Conservative Party members of a certain demographic who have paid £25 for the privilege.
The currency markets and large investors like certainty, and so do most individuals too. So if you have a significant overseas payment to make, you can lock in that certainty with a forward contract and know exactly how much you have to spend abroad. Do call your trader today on 020 8003 4915.
