Sterling Stronger as UK Inflation Remains High

Pound reaches fresh highs against the Euro

UK Inflation data this morning showed a drop to 8.7% but this is still higher than previous Bank of England forecasts.

This leaves the door open to future interest hikes, which in principal could lead to a stronger pound.

The pound was also in the headlines again yesterday as the Bank of England faced criticism.

In terms of where interest rates are headed, the governor Andrew Bailey spoke. “I think we are nearer the peak than we were”, was his commentary in relation to how much further hikes might go.

In acknowledgement of the Banks failure to control inflation, Bailey conceded “very big lessons” were there to be learned.

The news was not all bad in yesterday’s trading. The pound rose also rose higher yesterday as the IMF confirmed the UK is no longer headed for recession.

Why has the pound been strengthening this year?

Sterling has been empowered in recent weeks as the UK shrugs off the worst forecasts.

At the turn of the year, all eyes were on a long and drawn-out recession. This has continued to look less and less likely as the year goes on.

Our latest forecasts had thrown doubt on the potential for the pound to rise higher ahead. These forecasts are now coming under pressure as further good news emerges.

Whilst government borrowing has increased in the latest figures, the rise in projected economic growth and avoidance of recession is naturally seen as a plus.

When we consider that Germany could well be headed for recession, and the US economy is also not clearly out of the woods, the pound could be looking in good shape from an investors point of view.

When is the best time to buy Euros with pounds?

Looking to the data, our latest research had indicated of 54 banks; 45 predicted the pound will be lower. Precisely, they predicted the GBPEUR level would be below 1.14 in the coming months.

Considering GBPEUR levels have reached fresh six-month highs in May, now could be a good time to lock in your rate.

Clients buying £100,000 worth of Euros are today getting an extra €4,000 compared to the lows of February.

As mentioned, our research in assessing the predictions of all the major banks indicted a much tougher time than the pound is currently experiencing.

Market sentiment is providing a boost for Euro buyers with pounds but this might not last.

There is an argument to say therefore, that given the recent movements, and the fact that market expectations predict a lower pound, now is a good time to buy.

Will the US dollar weaken on the US debt ceiling talks?

Markets have been here many time before and only a handful of times have they failed to agree a deal before the deadline.

If the government runs out of money, and they fail to make payments then we could in principal see the US dollar weaker. With so many US dollar denominated assets globally investors might become fearful.

We might also flip this around and argue that the US dollar would actually strengthen since as a safe haven currency, the US dollar will rise in times of uncertainty

Investors will be keenly monitoring the outcome here, with the familiar talk of the reliability of the US dollar as a leading global currency and how justified that label is also likely to gain column inches.

For more information on the latest GBPEUR and GBPUSD forecasts, please contact me to learn more.

Jonathan

[email protected]

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