Unemployment and Bank of England news today for exchange rates

Yesterday’s big news on the currency markets, saw the UK CPI inflation figure come out significantly lower than expected. Inflation dropped to 1% from 1.3%, when analysts were only expecting a drop to 1.2%. The main reason for this large dip is the massive reduction in oil prices we have seen recently, which has seen consumers paying the lowest prices at the pumps for many years, and has therefore knocked onto the overall inflation number.

This is on the face of it, not very good news for the Pound – low inflation generally means the Bank of England won’t raise interest rates, and low interest rates mean fewer yield-seeking investors and hence a weaker currency. But two important factors offset this thinking… Firstly the drop in inflation is great news for the economy because it means that inflation is now significantly lower than wage growth so the cost of living crisis, that is affecting so many of us, should start to ease and secondly; the governor of the Bank of England, Mark Carney said just last week that interest rates will need to rise irrespective of low inflation, so the markets aren’t too worried that dropping inflation equals no interest rate rises.

The swing in Sterling’s strength yesterday was significant, with negativity taking hold very quickly after the release of the inflation data, but then positivity coming back in as the day went on – Sterling actually finished up having at one point hit the lowest rate for a month against the Euro.

Incredibly Busy Day Ahead

Today sees an incredibly busy day of economic data releases, with the Bank of England policy meeting minutes and UK unemployment at home, European and US CPI inflation and then the US Federal Reserve monthly policy announcement this evening. For those of you with an interest further afield we also have New Zealand’s GDP figure this evening.

With so much going on, it is of vital importance to stay in close contact with your CI currency broker to be kept informed of exactly what is happening and how it is likely to affect your upcoming currency purchase.