Inflation figures higher than expected – what now for the pound?
As my colleague Ben mentioned this morning we had the latest set of inflation figures from the UK. Surprisingly inflation increased to 3.5% in March from the 3.4% in February, a move that was a little unexpected with many analysts predicting a slight fall. This has halted a five month run of falling inflation and has divided opinion as to whether the Quantitative Easing programme adopted by the Bank of England is actually working. The next big data set to help determining whether QE has been successful will be GDP (Gross Domestic Product) figures for Q1 of 2012. These figures are released on the 25th of April and will be key for the short term direction of the pound. The UK officially finished 2011 in negative growth and another quarter like this will see the UK back in recession. Personally I think we will have a seen a slight expansion in 2012 but I do believe this to be minimal and can therefore not rule out the Bank looking at further QE heading into is next meeting in May. Regular followers of this blog will be aware the impact QE can have on the direction of the currency involved, therefore any talk of more QE is likley to hamper the pounds recent run – should you wish to take advantage with the pound at a near 19 month high against the Euro and close to 1.60 against the US dollar then email Michael at firstname.lastname@example.org
Sterling exchange movements against the Canadian Dollar
The biggest mover today against the pound was the Canadian dollar. The loonie as it affectionately known moved nearly 1% against sterling following the release of its latest interest rate decision in which the Bank of Canada decided to keep its base rate on hold at 1%. This did little to surprise the market and was very much expected but it was the report following this release from the BOC that led to a strong move for the loonie. The report indicated that the BOC will not rule out future interest rate hikes as economic growth and inflation figures were stronger than forecast. An interest rate hike would tend to lead to an increase in value for the currency involved as it makes it more attractive as an investment opportunity and hence demand will increase. Rumours of future rate moves will also tend to have the same affect, indicated by the move this afternoon. Tomorrows Bank of Canada Monetary Policy Report will give further insight into short term projections for interest rate moves and we may see further swings in the CAD.
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