Further woes for Sterling exchange rates

19 November, 2014

Rob Bastin

UK Inflation

After last week’s quarterly inflation report from the Bank of England the pound has dropped an average of 3% against most major currencies. With a lack of data on Monday the pound managed to bounce back a little ahead of yesterday’s inflation announcement for October. Markets were expecting inflation to increase to 1.3% from 1.2% previously and these expectations were met when the actual result were released at 9:30am. Usually this would be a good thing for sterling and we did see a very small spike in the morning trading. However in light of last week’s report, the markets were aware that this is expected to be a short term improvement with inflation still set to drop below 1% within the next 6 months and as the day’s trading developed we started to see this reflected in sterling exchange rates which dropped another half a cent against the Euro in particular.

GBP/EUR losses were aided by some very strong ZEW confidence figures out of Germany and the Euro-zone. Economic sentiment was significantly better than forecasts helping the Euro to fight back from its recent lows against sterling and the US Dollar with 1 cent gained against the latter despite good US figures in the afternoon. 

MPC Vote

Today is another potentially big day for sterling with the release of the Bank of England minutes at 9:30am. This data poses a real risk to the pound as for the last few months the MPC has had 2 members voting for a rate hike and 7 voting for a hold. Will 1 or both of these members change their stance on rate chances in light of recent inflation forecasts? It is very reasonable to expect so and this would inevitably see the pound subject to more selling. At 7:00pm this evening we have the similar release for the US with the FOMC minutes where the markets will be trying to gauge whether they are likely to raise interest rates before the UK.

With the pound under great pressure and with pivotal data out today and tomorrow with Retail Sales, make sure you are in close contact with your currency broker to keep on the front foot and prevent your currency need from escalating in price.

bank of england minutes currency