UK Inflation Data
Lots of UK data due to be released this morning. We have both the CPI Consumer Price Index Data and RPI Retail Price Index Data. Both are a good indicator of how the UK economy is performing, and also the UK inflation level. The latest figures for the rate of inflation were expected to show that it has fallen yet again.
However, the figures have just been released and show UK inflation at 3%, higher than the expected 2.7% figure.
This has strengthened the pound slightly, as higher inflation figures usually mean a lower likihood of the Bank of England cutting interest rates again. The Bank of England has already cut interest rates to 1% in an attempt to stimulate demand and the economy.
Interest Rates
What do these mean for exchange rates? Well, when a country or economic zone cuts rates, it provides less return for investors and thus weakens the currency. So, interest rate cuts for the UK will likely weaken the pound, and bring exchange rates down.
The bank of England have agressively cut rates several times in the last few months, bringing the base rate down to 1%, and severely weakening the pound and bringing rates down.
We are expecting the Bank of England to make another cut in rates in March, despite the slightly higher inflation figures.
So, if rates are indeed cut, expect lower exchange rates. For that reason, if you have a requirement to purchase foriegn currency with Sterling in the next 3 to 6 months, then consider fixing a rate with us sooner rather than later to protect you from market volatility.
As you can see from the chart, the Bank of England do have a fairly optomistic outlook for the UK economy to recover.
The markets however still view the pound as very weak. Further interest rate cuts as mentioned above, are very likely to put the pound under further pressure.
Despite the BoE forecast illustrated, most analysts do not expect Sterling to recover until well into 2010. If you cannot put your currency purchase off that long, then consider fixing your rate today using a Forward Contract.
This is where you can lock in todays exchange rates for up to 2 years, and only pay a small deposit now. This protects you from a potential downturn in rates, while giving you certainty of the cost of your currency.
Other News
Lots of US data released this afternoon that could well affect GBP USD exchange rates. For more information, please get in touch today.
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Labels: Exchange Rate Forecast
