Surprisingly, sterling has been the best-performing major currency so far this year. Compared to the beginning of the year it is up against most currencies including the EUR, USD & AUD.
The two main reasons for this is firstly the poor December which has made figures in early 2011 look fantastic in comparison and the speculation by many that the UK will be the next to raise interest rates. A rate hike generally indices investors and therefore pushes the rates of exchange up and in this case because of the general consensus sterling has pushed up. The though is that as commodity costs rise, ranging from food to fuel, inflation will continue to climb in the UK towards 5% which will put a huge amount of pressure on the Bank of England to raise the interest base rate.
Over the coming weeks there are a number of key reports that will add to this speculation to with two to take note of. Firstly the UK Inflation report released Wednesday 16th Feb and secondly the Bank of England minutes currently scheduled for release on Thursday 24th Feb. If the inflation report confirms inflation is climbing or the bank of minutes show a larger proposition voted for a interest rate hike I would expect sterling to continue its climb. However the other argument is history has shown that raising the rate of interest increases unemployment which the bank will try to avoid.
I personally do not think that a rate will be seen until the end of the year, but the speculation could continue to push rates up. If you are one of the many people that are in the process of selling abroad as living costs gets more expensive it may be prudent to contact us to discuss the forward contract option.