Inflation Affects Pounds Recent Gains

18 June, 2014

Simon Eastman

Following the highs we saw at the end of last week, Monday saw a slight correction as traders took profit from their gains. Tuesday was lead by inflation data for the UK and USA with the UK coming out in the morning. The figures missed expectations and showed inflation is dropping for the UK, hitting its lowest level in over four years. Low inflation means its less likely we will have interest rates increases so with the release of the figures the pound immediately lost ground across the board, dropping half a cent against the euro and US dollar.

With the hint of interest rates increasing still in the back of investors’ minds the downward spike didn’t last long and sterling regained all losses though, making transferring euros or US dollar at some of the cheapest levels in 2 years and 5 years respectively. One UK figure which did exceed expectations was the house price index, showing house prices rose on average by nearly 10 percent over the last year. While the EU ZEW economic sentiment indicator missed analyst forecasts for May also helping the pound regain ground against the single currency.

The afternoon was US led as we saw their inflation figures come out above forecast giving the dollar momentum to claw itself down from heading towards that magical level of 1.7 against sterling but it slowly started to head back there once new housing starts came in lower.

One currency which has dropped significantly against the pound recently is the South African rand which is suffering after the country was downgraded by a couple of credit rating agencies. The pound took a percent yesterday, but in the past week, sending money to South Africa has become around 5 percent cheaper! So if you’re looking to purchase a property in the south African sun, there is no better time than now. A 5 Million Rand property is now costing you £16,000 less, an incredible difference! You could speak to one of the traders at Currency Index today about fixing the rate for a future purchase via a forward contract.

Today we have more important releases for the UK in the shape of the Bank of England minutes which will give an insight into the members of the MPC and their thoughts on UK interest rates – could we see some members voting for a raise already?

Late this afternoon the focus will be across the pond as the Fed give their interest rate decision. Janet Yellen recently hinted at interest rate movement so again we could be in for some surprises and subsequent volatility on the rates. Whether you’re a business with dollar requirements in the Far East or an individual looking to buy in the Florida sunshine, you would be wise to speak with CI today to discuss all your options.