Tuesday, 19 August 2014

Pound falls further after poor inflation numbers

Tuesday 19th August 2014 
The Pound has fallen further today, as this morning’s UK inflation figures were worse than expected. Inflation is a key indicator of when interest rates may rise. If the level of inflation gets higher than 2%, then this increases the case for the Bank of England to raise interest rates. 

We were expecting the figure to come in at 1.8%, however it was actually slightly lower than this at 1.6%. The lower number eases the pressure on the Bank of England to consider near-term interest rate rises and pushes the balance more in favour of a delay into next year. 

So that is what has caused the Pound to fall today, as the charts below shows. We are now sat at a 4 month low for Pound/Dollar rates, and a 3 month low for Pound/Euro exchange rates: 


What next for Pound/Euro & Pound/Dollar rates? 


Tomorrow morning we will see the recent minutes to the Bank of England’s decision to hold interest rates. These will show if any of the 9 members voted for a rate hike and what was discussed. 

I think there is a good chance at least one of the members voted to raise rates. If this is the case, I would expect the Pound to gain. If none of the members voted for a rise, then we could see the Pound fall even further. 

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