Inflation hurdle for sterling

13 January, 2015

Rob Bastin

Monday’s trading was absent of any key data and so exchange rates were relatively stable across the board. Sunday night Home Loans figures for Australia were much worse than expected at -0.7% from a 2% forecast. The Aussie Dollar therefore took a step backwards yesterday after a particularly strong run in the last week or 2, matched only by that of the US Dollar.

After a busy start to the month sterling finds itself with a very quiet week of data ahead with the exception of one fairly major hurdle this morning in the form of the latest inflation figures for the UK. It is now well publicised that inflation is a concern in the UK with the Bank of England recently forecasting a drop below 1% this year which is the single reason that interest rate hikes are now a distant prospect. Last month’s figure saw a drop to 1% and forecasts for today’s news is a further drop to 0.7%, some way off the Bank of England’s 2% target. Should these figures be realised we would expect to see the pound come under plenty of pressure both today and for the week ahead with a lack of further releases to help recover any losses.

Thanks to the struggles in the Euro-zone GBP/EUR rates currently sit less than 1 cent off a 6 year high so present an excellent buying opportunity for those with imminent requirements. GBP/USD did manage to recover over 1 cent yesterday which in the downward scheme of things present an equally attractive opportunity to buy. This could of course all change at 9:30am on the release of the UK Consumer Price Index figures.