Thursday, 19 October 2017

Pound/Euro lower on Retail Sales and Wage Growth data

The last 24 hours have not been kind to Sterling. Firstly we had wage growth data yesterday showing that wages are rising at a rate of 2.1%. However, inflation is running at 3% so in real terms, incomes are being squeezed. These figures mean it's less likely the Bank of England will raise interest rates and the Pound fell yesterday.

This morning we saw the latest UK Retail Sales numbers, and these came in significantly below expectations, also pulling the Pound down against other currencies.

The below chart shows the GBP/EUR movement over the last 48 hours. It's worth remembering that last month, GBP/EUR was as low as €1.07 before shooting up to €1.14 on rumours the BoE would soon be raising rates.

I think however this was simply the BoE 'talking the Pound up' to try and limit any further losses. The latest data does not suggest to me that the BoE will be raising rates in November, and that's why the Pound is giving up its recent gains and dropping back away.

Lack of BoE action could send Pound lower

The BoE are caught between a rock and a hard place. On the one hand, they do want to start raising interest rates to combat inflation, but if they do, mortgage rates will go up leaving consumers with less to spend, which will slow the economy meaning rates will have to be cut again! The Retail Sales number support this view, as without people spending economic activity will also slow. For these reasons, I think looking at economic data alone, it's more likely than not that the Pound has further to fall.

Brexit Deadlock also risks pushing Sterling lower

Much depends on what happens in the coming days with Theresa May meeting her EU counterparts. If we get a surprise announcement that they will soon be moving on to trade talks, then this would push the Pound back up. However I think it's more likely that trade talks will now be pushed back to next year. The EU are seemingly refusing to discuss anything until we have given them a figure on the divorce bill. Something, quite rightly in my opinion, that the UK are unwilling to do until talks move forwards as for me the two things are intertwined and inexorably linked. The first rule of any negotiation is being willing to walk away and the UK may well make clear that this is an option.

Potential for GBP to fall to new 9 year lows vs Euro

The above situation is Sterling negative, and there is the potential for Sterling to be sent back to it's 9 year low of €1.07 show rates remain on hold and Brexit talks continue to falter. If you want to find out how to protect against the rate dropping, have a chat about exchange rates, or simply get a quick quote to compare with your bank or existing broker, click here to send a free enquiry today.

Wednesday, 18 October 2017

Australian Dollar rallies overnight

Overnight the Australian Dollar has strengthened against a number of currencies including the pound, pushing to a near one month high against sterling.

Recently the Australian Dollar has weakened due to some poor figures from China, its biggest trading partner. As China is a net importer of raw materials from Australia, the Australian economy tends to perform well when China performs well, and when figures are poor, or growth down, this has a direct impact on the Australian Dollar.

What is in store for GBP/AUD?

However following yesterdays uncertainty surrounding UK interest rates, the pound took a tumble against most majors, and this fall has continued overnight against the Australian Dollar.

Should you need to buy AUD then the current move and the uncertainty surrounding interest rates and Brexit should be a worrying one. If, as like many, you are hoping an interest rate hike by the Bank of England (BofE) will lend some support to sterling then you may get a surprise. I for one feel it is unlikely the BofE will raise in November. With slowing wage growth and an under performing economy due to on-going Brexit negotiations, a rate hike could do more harm than good.

Another point to argue is that the Bank of England have now been talking about a rate hike for a number of months, at some point they will act, maybe early next year, but it wont be a surprise to the market. Also any hike will be slow and gradual with a softly softly approach being adopted by the central bank. For this reason even a rate hike is unlikely to impact on sterling significantly.

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Tuesday, 17 October 2017

Pound falls after Mark Carney speaks

Despite inflation hitting 3% as outlined in my earlier post, Mark Carney was a little dovish in his comments to the treasury select committee earlier. While he did say that the case was probably there for a rate hike in the coming months, the Pound has moved lower following his words. It's often the case that when Mark Carney speaks the Pound falls, and this is what has happened again. I think that markets had priced in a rate hike for November, but it's now looking more likely that a move up in rates won't come until December. He re-iterated the usual case about sluggish wage growth.

So with little prospect of interest rates going up next month, coupled with a deadlock in Brexit negotiations, if nothing changes on these 2 fronts then it's likely the Pound will continue to fall against other currencies. Today, GBP/EUR has dropped from €1.1300 to €1.1225. Those who need to buy Euros in the next 3 months should not be too disappointed however, as just last month the pair was in the €1.07's.

If you would like to protect yourself against the rate dropping any further, then you can freeze the current rate using a 'Forward Contract' by lodging 10% of the total you want to convert. This guarantees the current rate and allows you to budget, while protecting you against any adverse movement in the rate of exchange. Click here to find out more or get a quote.

Inflation at 3%; Mark Carney to hint at interest rate rise?

Inflation at 3% as expected

A few minutes ago the UK released it's latest inflation numbers, and the key Consumer Price Index (CPI) number came in at bang on forecast at 3%.

Some other measure were slightly lower than expected, however as the main release matched what the markets were expecting, it has had little effect on Sterling.

Inflation is now running at the highest level in more than 5 years, so it does make it more likely that that BoE will have to raise interest rates sooner or later in order to curb this rising inflation.

Mark Carney to hint at interet rate rise?

Later on today the Bank of England governor Mark Carney gives a speech to the treasury select committee. If he makes any comments that hint at an interest rate rise, then expect the Pound to rise against other currencies.

Brexit Negotations ready to move forwards to next stage?

Elsewhere, last night Theresa May had a working dinner with Jean-Claude Juncker and EU negotiator Michel Barnier, along with Brexit Secretary David Davis. There were no revelations other than all parties stating that talks were constructive and friendly. A key word that was used however was that talks must 'accelerate'. Most would agree that after months of talks, it's time that things moved forwards and significant progress needs to be made. The  next key event with regards to Brexit will come on Thursday and Friday, when the EU commission end their meeting. It's likely that many of the EU27 will be pushing to move Brexit talks forward and if we see any announcements that hint of this, the Pound would probably benefit.

Getting the best exhange rates

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Monday, 16 October 2017

UK inflation figures the key release for sterling this week

Of course on going Brexit negations will continue to have a significant impact on the pound,  however the key release for sterling will come on Tuesday morning with the release of UK inflation figures at 09:30

Recently Mark Carney and the Bank of England (BofE) have hinted at the need for an interest rate rise due to due to rising inflation. Indeed if the core inflation figures, in the form of Consumer Price Inflation, reaches 3% or more, Mark Carney has to write a letter to the Chancellor explaining why levels have increased significantly above the BofE of target level of 2%. 

What impact will an interest rate rise have?

Tuesdays figures are forecast to reach this 3% level, an increase on the previous month of 2.9% - should this occur will we see a rate rise? Some have suggested the Bank of England have simply been hinting about a rate rise to give sterling a much needed boost and would argue due to stagnating wage growth the economy could not handle a rate rise, however the Central Bank cannot keep hinting at a rate rise without having to act at some point. 

Should they keep hinting but not raising then Mark Carney and the Bank of England's credibility may come into question. For this reason Tuesdays figures are key and should we see 3% or more then the Bank of England may have no choice but to raise rates. A move to 3% on Tuesday and I would expect sterling to see a push towards 1.14 against the Euro and 1.34 versus the US dollar. Of course should inflation levels remain flat or fall then sterling could be set for a tough day. Either way expect volatility tomorrow morning,

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