Tuesday, 17 June 2014

Low inflation figures do little to dent the Pound

Tuesday 17th June 2014 
Good afternoon. The pound dipped slightly this morning, after figures showed that inflation has fallen to 1.5% in May compared with 1.8% in April. The market had been expecting the number to be a little higher, so the immediate effect for Sterling was a dip in rates. As you can see from the chart below however, the dip was not to last, as some poor Economic Sentiment figures from Europe released shortly after brought the GBP/EUR rate comfortably above the €1.25 mark again:



It is the sixth consecutive month that inflation has been below the Bank of England's 2% target, which would generally mean that there is now less call for the Bank of England to raise interest rates. The market has clearly shrugged off the figures, probably because separate figures from the Office for National Statistics showed that UK house prices leapt by 9.9% in the 12 months to April, and a rate hike would help cool the housing bubble slightly. 

What next for exchange rates? 


We are currently at an 18 month high for Pound/Euro, and around a 5 year high for Pound/Dollar. Tomorrow is all about the central banks. At 09:30am we will see the latest minutes from the Bank of England (BoE) showing what was discussed at their recent interest rate meeting. It will be very interesting to see if any members voted for a rate hike. Of more interest will be any accompanying comments that may indicate when the BoE will look to hike interest rates. 

Later in the day it is the US Federal Reserve’s turn to decide what to do with interest rates, and like the UK any hints they give to future policy could affect the Pound/Dollar cross. 

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