Pound remains strong amidst interest rate drama

17 June, 2014

Matthew Boyle

Yesterday was a fairly quiet day for the majors, with the only data of note being EUR CPI data – all of which came in exactly on consensus and so caused no movements. However we did see GBP gains from last week against EUR slowly fade with the pound losing around 1/3rd of a cent against the single currency- perhaps a correction given the huge gains we have seen over the past month or so. Indeed the effect of the negative ECB Interest rate changes as Mario Draghi said himself would be “uncertain” so without doubt we will have to wait some time to see the true effect. Interestingly following Mark Carneys comments from the BoE last week, it has been strongly suggested that the UK is on a strong road to recovery and in fact there may be an increase to interest rates in the near future, something likely to strengthen the pound. even further.

Across the pond the USD is remaining to struggle with rates pushing close to the 5 year high we saw a fortnight ago against GBP. Interestingly however it remains strong against EUR, having gained 3 cents over the last few months. This is a strong indication not only of the pound strength at present but also the struggle both the EUR and USD currently find themselves in.

Fed Chair Janet Yellen has already indicated following Europe’s change and Carneys comments that there may be a hike is US interest rates, perhaps in an attempt to strengthen the very weak USD given the fact that the past change to their bond purchase scheme had an altogether little and short-lived effect. This change however may have been delayed in part as the IMF yesterday slashed US growth forecasts – suggesting a 2% growth down from a projected 28% this year. They have also suggested that US economic recovery is further away than originally thought, suggesting that Interest rates could actually remain low until mid 2015. Without doubt investors will be keeping a close eye on the US situation given its currently precarious position.

Take note though, as and when an interest rate change or amendment t their Q.E programme happens it is likely we will see the USD strengthen quickly, so those of you with upcoming USD transfers to make are well advised to stay in close contact with your CI broker.

Today we are likely to see a little more excitement on the market as GBP and USD take main stage.

This morning we have a raft of UK PPI, CPI and retail data – is this perhaps another opportunity for the pound to demonstrate its current dominance, or an opportunity to falter? Certainly any poor data could easily unsteady the pound.This afternoon we move across the Atlantic as the US releases CPI and housing data. Again investors will be fixed to see what is reported here, particularly given the delicate situation in the US, and Yellons and the IMF’s slightly differing take on the economy.

If you have any upcoming transfers to make stay in close contact with your CI broker for some friendly and professional guidance. With the huge gains the pound, the fragile nature of both the EUR and USD, and the unknown effect of interest changes in Europe whilst change is threatened in the US it is likely that soon we are set to see some fast changes in rates.Currency Index can help you stay well informed and well ahead of the market.