Friday, 18 February 2011

Sterling up vs Euro on BoE comments

18th January 2011
Good morning. The pound bounced back yesterday and this morning after falls on Wednesday. It was helped by some robust economic data and also Andrew Sentance, one of the BoE members who said a rising pound may help inflation. At 08:30am this morning rates are as follows:

  • GBP/EUR 1.1925
  • GBP/USD 1.6201
  • GBP/AUD 1.5994
  • GBP/NZD 2.1236
  • GBP/CAD 1.5931
  • GBP/CHF 1.5415
  • GBP/ZAR 11.638
  • GBP/JPY 134.99
  • GBP/NOK 9.2558
  • GBP/HUF 321.14
  • EUR/USD 1.3578

Pound gains on Andrew Sentance comments

Bank of England monetary policy committee member Andrew Sentance yesterday put further pressure on other MPC members on tackling high UK inflation in a speech. He questioned claims that unemployment would slow down price rises, instead blaming strong global demand.

He has been voting for an interest rate rise since June last year, and last month he was joined by a second member of the MPC. It's this shift towards possible higher interest rates that has been pushing the pound up over the last week or so.

He also said in his speech that the exchange rate may have overreacted to the recession, adding to inflationary pressures, and favoured a modest appreciation in sterling.

The large fall in the value of of Sterling during '07 to '09 was "the largest depreciation we have experienced in a relatively short period over the past two centuries, with the exception of the departure from the Gold Standard in the 1930s," he said, referring to the huge drop we saw in rates at the beginning of 2009.

A weaker pound makes the UK economy more price competitive internationally, but it also feeds into inflation via higher import prices. For those needing to buy foreign currency to purchase property abroad or for business requirements, a weak pound has significantly increased the cost of purchasing other currencies.

The Bank of England does not typically express an opinion about the value of the pound, preferring not to influence the currency markets. But Mr Sentance said that the currency should be "one of the key areas of focus as we seek to steer ourselves out of the current phase of high inflation."

So, with some members wanting rates to rise, with others preferring to keep them on hold, the net result will be continued uncertainty and volatility in the markets.

Currently though against the Euro the pound is getting back close to it's highs of recent months. The last 4 times this happened, rates quickly fell back away on poor economic data. If you need to buy currency, then contact us today to discuss our commercial exchange rates, and contract types to help protect against adverse rate movements.