Tuesday, 14 February 2017

Pound/Euro falls on low inflation figures

Sterling/Euro rates reach a high of €1.1825 this morning but true to form, the high level didn't last, and has dropped a cent to the low €1.17's. This is due to inflation coming in lower than analysts had expected, which reduces the chance the Bank of England will raise interest rates this year.
 
Go on-line and I'm sure that you will see the major news outlets shouting about inflation being at the highest level for several years, but for the currency markets what matters is how the figures come in compared to the forecast, and analysts had expected the number to be even higher. So while inflation is high, it's not as high as the market had expected and that's why the Pound has fallen.

Following the UK data however, we had a raft of negative EU growth figures which has weakened the Euro slightly, halting the decline in GBP/EUR rates. Rates to buy Euros have been flat hovering around the €1.17 mark for a week now, having risen from €1.13 last month, but with article 50 due to be triggered soon, there is the chance  the Pound may fall. Over the last 3 months we've seen this trend repeated several times, where we get to the levels we're at now before dropping away again.

Longer term, with political risks likely to weaken the Euro later this year I think we will see buying rates for the Euro get back to around €1.25 by the end of the year, but due to Brexit uncertainty things may get worse before they get better.

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