Tuesday, 13 January 2015

Sterling rises by over a cent after inflation figures released

Tuesday 13th January 2015 
The Pound has risen well against both the Euro and US Dollar today, pushing GBP/EUR up 1 cent to close to €1.29, and GBP/USD also rose a cent to $1.5165. The rise in exchange rates comes after figures this morning showed that inflation in the UK has fallen to 0.5%, the lowest level on record. 


Why has the Pound risen on the low inflation figures?


The low inflation means that interest rates are very likely to stay on hold for some time to come. Usually this would weaken a currency, so why have the low inflation numbers caused the Pound to rise? 

It’s because the fall is seen as generally good news for the UK economy. Recent figures already indicated that interest rates are likely to stay on hold this year, so today’s figures haven’t changed that view, and that’s why the Pound didn’t fall. What the figures do mean is that spending power in the UK has increased, and this in turn should spur the economy as a whole as people have more disposable income, so things like Retail Sales should go up as people feel more confident in the UK’s economic recovery. 

It should be noted however that the GBP/EUR rate in particular keeps getting to these levels, before dropping back off again. This trend has repeated itself many times over the last 12 months. Those with Euros to buy should therefore consider taking advantage of the current levels, which are after all around the best they have been in over 6 years. 

Those converting Euros to Pounds however should be cautious, as any further indication of monetary stimulus in the Eurozone could well weaken the Euros buying power. 

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