UK inflation has hit its highest level since 2013 and this helped the Pound to make gains vs the Euro. The reason for the rise in value of the Pound is that the data supported the opinion of one of the Bank of England’s members who voted for an interest rate hike last Thursday.
Rising inflation has occurred owing to high oil prices as well as food prices which have increased in recent times and inflation came out better than expected at 2.3% compared to 2.1%.
Typically the best way to combat rising inflation is to raise interest rates and in turn this would help the Pound and so this is the reason for the short term increase in the value of the Pound vs the single currency.
UK Retail Sales are due tomorrow morning and recently this data has shown a slowdown. With consumer spending very crucial to the British economy I think this could reverse Sterling’s gains by tomorrow morning.
With just one week to go before Article 50 is triggered the market has been waiting with baited breath to see what will happen once the UK formally send the letter confirming their request to leave the European Union.
When we cast our minds back to what happened with the Brexit vote back in June last year the Pound plummeted against all major currencies and especially against the Euro with a 9% drop seen in a single day.
Owing to the precedent that was set last year we could see big swings once the letter is sent. However, it can be argued that the difference this time is that we know when this will take place.
The real problem for the Pound is that by formally announcing our divorce from the European Union we open ourselves up to 2 years of uncertainty ahead. With 27 member states to negotiate with I think we are set for a very volatile period coming.
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Tom Holian email@example.com