Inflation
Today we see inflation measures for the UK released at 09:30. We have the CPI (Consumer Price Index) and RPI (Retail Price Index). CPI is expected to fall from last months 3.2% down to 2.9%. This is still well above the target of 2%.
The drop is expected to be caused by falls in energy bills, but because Sterling is so weak at the moment, food prices are expected to remain high as importers suffer higher costs due to lower exchange rates.
Normally, high inflation would mean a likely hike in interest rates by the Bank of England to try and keep it in check, however in the currency economic climate, it's highly unlikely to happen. If anything, the bank would like to drop rates further to try and stimulate spending, however rates are almost at zero anyway, which is why money is being created through quantitative easing.
Inflation and Exchange Rates
Usually higher inflation as desrcibed above would lead to higher interest rates as already mentioned. These higher interest rates would give investors a higher return, and so we would see more demand for the pound. This in turn would strengthen the currency, and we would see higher exchange rates.
The key word in the last paragraph is 'usually' as we are certainly in unusual times. With very low interest rates that cant be moved, more money being created which would well lead to even higher inflation, and we could be in a vicous circle. The government are putting blind faith in being able to spend their way out of the problem, and this puts the UK and Sterling in a position where investors are waiting to see what the effects of the stimulus will be.
The inflation measures if different from forecast however will still affect GBP exchange rates, so get in touch to discuss the implications for your requirment.
What next for the pound
At the moment, the consensus is that the pound is much weaker than the Euro and Dollar due to the extreme measures we are taking. We will know more tomorrrow when the minutes from the Bank of England meeting are released, and we can see what was discussed.
Also, the budget speech by Alastair Darling this week will also, I beleive, have a massive impact on Sterlings value as investors watch closely for hints on the recovery of the UK. I think it's much more likley that the pound will get weaker than suddenly strengthen. We have all our eggs in Darlings basket fo 'quantitative easing' at the moment, and I for one to not have confidence this will be a majic wand for the economy.
As the week plays out, and we see lots of other economic measures, we will get further ideas on which way will go. Expect some dramatic movements for Sterling exchange rates this week as tomorrow we have jobless claims, Claimant count, Money Supply, Average Earnings, Public Sector borrowing to name just a few.
We should get a clearer idea on which way the economy is headed, and of course this will relate to the value of Sterling and affect exchange rates.
I believe the recent run Sterling has had could be over, and we may see rates start to fall back. Live rates can be seen in the sidebar of the blog.
For detailed information on data releases, exchange rate forecasts, and how to get the very best exchange rates for your currency purchase, contact us today.
Tesco Profits
In other news, Tesco has made pre tax profits of more than £3 billion. The profits are the highest ever recorded by a UK retailer, and is even more impressive given the curreny economic climate. However growth is slowing, and the news has done little to help the pound, with rates this morning already slightly down on yesterday.
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