It’s all about inflation for exchange rates
18 November, 2014
In the last couple of weeks we have seen a significant shift in market sentiment for Sterling with the buoyant fastest growing economy in the G8 mindset, being replaced by a much more circumspect inflation scared, no interest rate rises for another year outlook. The result is that the Pound has dropped by around 3 cents against the Euro and even more against the Dollar.
Today sees potentially the next big step down the road of this sentiment change with the next UK inflation release. Many analysts expect UK inflation to continue its freefall, which has seen it drop from a high of 5.1% in September 2011 to the current levels of 1.2%, with levels anticipated to be going sub 1% in the coming couple of months. Today’s announcement is not quite so clear with some actually predicting a slight rise, but even if realised this is likely to be a short term move ahead of further drops.
As our regular readers will be aware, low inflation makes it harder for the Bank of England to raise interest rates, which means a lower yield for investors and hence a weaker Pound. Current estimates for UK interest rate rises have moved back all the way from; the next couple of months, to Autumn next year, and this is the main driver in the recent Sterling drop off.
So it could be that a slight rise in inflation this morning gives us a short term window of Sterling strength, before the negative trend is resumed, so stay in close touch with your CI account manager across this release (9.30am) to be kept informed of exactly what is happening.
Draghi under pressure, German economy in focus
In other news Mario Draghi yesterday said that the ECB is ready to step in with various schemes to aid the ailing Eurozone economy, and today sees a key data release from Germany in the form of the ZEW consumer confidence survey. The market is very uncertain of what to do with the Euro. Better than expected GDP figures gave it some support last week, but ultimately the numbers were very poor, particularly for the European backbone – Germany. Draghi is under a lot of pressure and stimulus from the ECB could send things either way, so watch this space carefully.
Transfers to New Zealand get more expensive
For those of you considering a move to New Zealand or simply with an upcoming transfer to New Zealand Dollars, it is worth noting that the GBPNZD rate has dropped by over 10 cents in just the last week and a half. The earlier mentioned pressure on the Pound coupled with expectations that there will be an interest rate rise in New Zealand soon, have seen the Kiwi surge – make sure you stay in close contact with CI to be kept informed of the impact this could have and therefore your best options.
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