Yesterday saw the largest total single day movement on Pound to Euro and Pound to Dollar exchange rates this month, reflecting a market currently torn on what exactly to make of a very volatile Pound.
There were a few things which dragged the Pound in different directions today, but the most controversial feature came from news released for the UK’s inflation situation yesterday morning.
You may have seen the headlines plastered over your television and on news websites yesterday that inflation has hit its highest level since June 2014. Yet it was actually expected to come in slightly higher than the 1.8% recorded, which is where the controversy has come from.
The Bank of England has a target rate for inflation for the year set at a modest 2%. To most central banks, this is a ‘sweet spot’ to aim for, where price rises are manageable for the consumer, but still large enough to encourage spending and bolster economic growth.
Inflation is normally managed through changing interest rates. Simply put a very low inflation level means that interest rates are dropped to encourage spending over saving, and conversely high inflation levels (above 2%), encourage hikes in interest rates to prompt people to save and cause prices to fall.
Interest rate hikes in the UK would certainly improve the value of the Pound and trend well on Pound to Euro and Pound to Dollar exchange rates, with investors wanted to buy up the Pound in a stampede in order to see higher returns for their vast capital.
Due the drop in the Pound’s value, inflation in the UK has soared, and some were expecting the 2% target for the UK to be breezed past. Yet it is not yet happening, and the news yesterday morning upset some investors who were hoping for a hike in interest rate shorter term, which is now in doubt.
As such GBP/EUR, GBP/USD and GBP/AUD fell dramatically immediately after 9:30am, as mass sell offs of the Pound occurred.
At the time I thought it to be a dramatic overreaction, particularly since this suggested that inflation was not flowing ‘out of control’ as some were anxious about following the Brexit vote. It seems that sanity returned, with Pound to Euro rates rallying the most, and US Dollar and Australian Dollar exchange rates clawing back about 75% of the losses recorded.
I think the lesson from yesterday is that there is still a strong degree of hypersensitivity surrounding the Pound, and this will likely increase the closer we get to Article 50’s triggering next month.
Given that the debate on Parliament’s role in the Brexit which has supported Sterling’s value so heavily over the past four weeks has finally concluded; until some new narrative hits the marketplace, there appears to be a stark rise in risk over opportunity for Euro and Dollar buyers over the past few days. As such anyone with a GBP/EUR, GBP/USD or GBP/AUD interest may be wise to move sooner rather than later in this current market.
Conversely, anyone with a Euro or Dollar to Sterling interest is in less of a rush from my perspective and should see more attractive levels in the coming weeks.
If you are planning to make a currency exchange involving the Pound and the Euro, US Dollar, Australian Dollar, or alternative currencies, it’s well worth your time getting in contact with me on email@example.com in order to ensure you make a well informed decision on when to make that particular transfer, as well as benefiting from highly competitive exchange rates from one of the UK’s leading foreign currency brokerages. Just provide me with a basic outline of your currency requirement and I will be back in touch with you as soon as possible.
I have never had an issue beating the rates of exchange on offer elsewhere, therefore a short conversation could save you a significant sum on an upcoming transfer.
If you wish to call me directly – simply call 01494 787 478 and ask the reception team to be put through to me, Joshua.