Tag Archives: inflation
Sterling exchange rates following inflation data – The Bank of England is stuck in a tricky position to say the least (Daniel Wright)
The Pound has risen ever so slightly this morning following inflationary data coming out slightly higher than expected.
The Bank of England would like the Pound to be weaker but the problem they face is that the lower the Pound the more imports will cost, therefore goods are more expensive which is not good for inflation.
Raising interest rates to combat inflation will lead to more expensive borrowing costs for everyone and growth being stunted due to less investment.
Not a nice position to be in – A rock and a hard place comes to mind!
For those of you that do not follow the markets the reason that this has led to the Pound gaining value is that the Bank of England do not want to have inflation getting too high and this is a sign that is is creeping up (things are getting more expensive to buy). The best way top tackle high inflation is to raise interest rates and a hike in interest rates generally is seen as positive to the currency concerned as it makes it more attractive to investors.
The currency markets do move in advance of things like this happening which is why the Pound has gained as the chance of a rate hike has increased ever so slightly.
Of course there are a lot of other factors that may affect rates in the coming days, we have the Bank of England minutes tomorrow morning which will show us how many members voted in favour of or against both Quantitative Easing and an interest rate change.
Indications that we are on the edge of further QE may be seen as negative for the Pound and the last few months this has been the more likely however any indications that members heads are moving towards a hike in rates could lead to another boost for Sterling.
Be aware we also have the budget tomorrow which in all honesty is rarely a big market mover however you always need to be cautious of a surprise popping up!
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Sterling exchange rates fell yesterday to a 3 week low against the greenback falling back into the 1.59 territory. This is a something that I personally feel could continue, particularly with the continuing unrest in Europe. With the US dollar still very much the global currency of choice (mainly as so many commodities are priced in dollars) during times of unrest the dollar will normally outperform most majors. I for one feel this trend is close to happening as investors digest the problems facing Spain (their bond prices reached a record high for 2012 on Monday at 6.218%). This is creeping ever closer to the 7% levels at which Greece, Portugal and Ireland had to seek bailouts and with Spain potentially a much larger problem, I really feel this will weigh on the Euro (I would expect levels to remain above 1.25 heading towards 1.26 and beyond in the short term).
For this reason I too think the US dollar will begin to find support as investor’s look to move their money to the relative safety of the dollar and we could easily see a move back towards 1.58 in the coming days. For the best exchange rates on your transfer and to discuss the various contracts we can offer in an attempt to maximise your currency exchange then please email Mike at firstname.lastname@example.org
Greece heads back to the polls as Hollande officially takes over from Sarkozy
Greece is set to go to the polls again after days of coalition talks failed to produce an agreement on a new government, on the day the new French president Francois Hollande was officially sworn into office. Mr Hollande said he was aware of the challenges ahead, including the debt crisis, and vowed to “open a new path in Europe”.
Mr Hollande called for “a compromise” over the German-led focus on austerity as the way out of the Eurozone, however in on goings in Greece still appear to be dominating the Eurozone and the Euro.
At the elections on 6th May, the results showed a majority of Greek voters backing parties opposed to austerity plans demanded by the EU and IMF in return for two bailouts. Polls suggest the leftist Syriza bloc, which came second in the 6th
May vote and rejects all further cutbacks, could become the largest party after a new election. Syriza wants to renegotiate the bailout package but also wants to keep Greece in the euro.
However European leaders say they will cut funding for Greece if it rejects the bailout agreed in March. This would effectively mean bankruptcy for Greece and German Finance Minister Wolfgang Schaueble again ruled out amending the agreement. The Greek president Karolos Papoulias will meet all political leaders at 13:00 local time (10:00 GMT) on Wednesday to put in place an interim government until the new vote, which is expected to take
place on 10th or 17th June.
I feel this will continue to heap pressure on the Euro and any Euro sellers, certainly if funds are not liquid, may wish to consider a forward contract to guarantee their rate in advance. For Euro buyers this is potentially good news, however for anyone with an interest in GBP/EUR look out for the unemployment figures and Bank of England Inflation report at 09:30 and 10:30 respectiveley.
What now for the Aussie, Kiwi and Rand?
Recent moves against these three currencies have been dramatic to say the least. Since the year lows in February we have seen the pound gain 9.5% against the Aussie, 9.7% against the Kiwi and 10.8% against the Rand. On a transfer of £200k between the high and low during this time this makes a respective difference of AUD 29,400, NZD 41,400 and ZAR 288,000. Is it time to take advantage?
This recent trend must be somewhat of a relief to the many clients and individuals emigrating to that part of world. I personally feel with the volatility in Greece this trend could continue in theshort term. But to use the analogy of an elastic band, I do feel these currencies could snap back at any point. However until a degree of stability is restored in Greece (Christine Legarde head of the IMF was quick to rule out a breakup of the Euro) this run may continue, just make sure you are in a position to take advantage.
To dicuss the this report and my views or to run through yoru individual exchange requirement then please email Mike at email@example.com or call 01494 787 478
Pound Sterling Forecast – The week ahead sees some important data releases for the Pound, Euro, U.S Dollar, New Zealand Dollar, Australian Dollar and Canadian Dollar… What is out and when?
This week is sure to be a lively one, below is what is due out and what I feel may happen:
This morning – Inflationary data has been released for the U.K (09:30am)
13:30pm Retail Sales (USA) – One for those with an interest in the Dollar this afternoon with Retail Sales figures being released. Many top analysts still believe the Dollar will launch a fight back in the coming weeks and months, and some believe the Dollar will have a strong year (making it more expensive to buy). Expectations for this release is an improvement and personally I feel the release will be good, but not quite as good as expected however this isn’t a huge release so no major market movement expected from this one.
21:45 Retail Sales (New Zealand) – This one will effect the ever strong New Zealand Dollar, which has had a great few months (Not so great for Britons with money to shift over there). The data covers the last quarter of 2011 and expectations are for a drop, this may lead to a short term spike against the new Zealand Dollar however in my opinion unless we see real global uncertainty again soon the the NZD will stay reasonably strong.
23:30 Consumer Confidence (Australia) – A late release for Australian Dollar followers which will show the confidence levels of individuals have in the economy and how things are going in Australia, many clients I speak to say all is not as rosy as is being made out over in Australia unless you are in the mining industry, but lets see what this brings, personally much like the NZD I feel the AUD will stay strong unless something major happens worldwide.
Tomorrow 08:00am (German GDP) – A key indicator as to how the largest economy involved in the Euro is performing, this is followed up at 10:00 by GDP data for the European Monetary Union. A bad release for Germany may indicate that the worst is yet to come as the EMU is expected to release a negative figure for Q4 of 2011.
Tomorrow 09:30am (U.K Unemployment) – A flurry of unemployment data for the U.K which is not expected to be too good (yet again). If you have Pounds and wish to buy a foreign currency it may be prudent to seriously consider your options before this release.
10:30am – (Mervyn king’s speech) Mr King seems to be very good at making the Pound weaken, whether it be on purpose or not and those that have tracked Sterling over the past few years will indeed be well aware of this, certainly one to watch with interest… In my opinion Wednesday will be the most volatile day and I expect it to be poor for Sterling.
Thursday – Overnight (Australian Unemloyment Rate) No huge changes to unemployment expected in Australia however as always expect the unexpected in this market!
09:00 – ECB monthly Report - The European Central bank will release their monthly report on Thursday morning, this will give an indication as to how they plan to deal with the economy in the coming monthand what has happened in the past month, we may see a hint as to whether or not we can expect another cut in interest rates as has been mentioned of late, if this is mentioned with an indication for next month, we may see Euro weakness following it.
Friday 09:30am – U.K Retail Sales (January) How well did the retail sector perform after Christmas, I feel the U.K tightened their belts during this period and it would not surprise me to see another poor start to the day for the Pound.
12:00pm Canadian Inflation data – The Bank of Canada release inflation data at noon, slight rise to 0% is expected and any change from this could lead to movements either way… again we do appear to be range bound against this currency however I feel that sub 1.55 is just around the corner unless the U.K can bring us an unexpected good week.
13:30pm U.S Inflation- Inflation time for the States to round off the week, personally I feel this won’t be a big one for the markets unless something major is thrown into the mix.
In short I think the Pound will find it tough this week, if you have a bank to bank transfer to make from sterling to a major currency or from a major currency to Sterling then contact me directly firstname.lastname@example.org to make sure you really are getting the best exchange rates for your transfer along with the highest level of customer service and efficiency. I look forward to hearing from you.
Tomorrow morning 05:30am - Australian Interest Rate Decision: A big one for those with an interest in buying or sellnig Australian Dollars, no change in interest rates is expected however they have been known to come out and surprise us, the general feeling is we may see if anything at all a minor cut in rates, which would be great news fopr those buying the AUD however by no means is this a certainty, merely a punt.
Wednesday early morning 02:30am – Australian GDP Figures: Once again important figures for Australia in what is lined up to be a busy week for the AUD – GDP figures cover how much the Australian economy grew or shrunk over a specific period of time and could be key should we see any change to predictions. This is another coming out overnight so do not leave yourself open to market fluctuations…. you can place a limit or stop order to protect yourself from market movements, or even take advantage of movements should they go the right way. I have these tools available, email me email@example.com and I will be happy to assist you and explain how these work.
Wednesday Afternoon 14:00pm – Canadian Interest Rate decision: Again no change to rates are expected but be aware that Central Banks have been known to surprise. Canada had poor GDP figures last week and this might lead them to also make economic announcements which could lead to volatility on this currency.
Wednesday Afternoon ??pm – NIESR GDP Estimate (U.K) - The NIESR (National Institute of Economic and Social Research) is quite highly regarded as a fairly accurate prediction for the U.K GDP figures ahead. They are a think tank built up of business leaders and rarely get it too wrong, this release can generally move the market quite a bit and doesn’t always come out at a specific time so be wary all week that this bombshell could come out at any moment!
Wednesday 19:00pm – Federal Reserve Beige Book (U.S) - This is purely an economic release of plans going forward for the States on battling their economic conditions and any mention of Quantitative Easing is likely to weaken the Dollar. QE is where a central bank essentially prints more money and pumps it into the economy, this can weaken the currency as more of it is in circulation and further down the line it can really push up inflation, a major case study of this is Zimbabwe where you need a wheelbarrow full of money to buy a loaf of bread these days – not good!
Thursday Afternoon 12:00 & 12:45 – Bank of England and European Central Bank Interest rate decisions - We all know that it is highly unlikely to see a change in the U.K interest rates however all eyes will be on any comments made surrounding the U.K economy and any mere mention of QE (Quantitative Easing) The Europeans however have raised rates twice this year so albeit a tiny one there is a chance they could do this again which would increase the value of the Euro and potentially take the spotlight off of the debt crisis spreading like wildfire within Europe.
Friday sees some inflationary data for the U.K along with Trade Balance figures, much will change before then though so come back tio the site for more information nearer the time.
If you have an upcoming transfer to make feel free to contact me directly on firstname.lastname@example.org – I can potentially save you £1000s on any transactions be it buying or selling foreign currency, along with offering a fantastic level of customer service. I look forward to hearing from you soon.
Interesting article regarding Growth vs Inflation from FX Street.com They expect the pound to continue to weaken through 2011 :(
FXstreet.com’s analyst Valeria Bednarik says in the article below that the UK “monetary independence is both a blessing and a curse”, good point given the problems over the Eurozone periphery. It seems to be accepted by the market that the BoE is focused on inflation and not the recovery, as the BoE´s governor Mervyn King and Chancellor George Osborne have been busy these last six months.
Looking at the numbers, year-over-year inflation was up around 4.2% in June, leading to speculation of a rate hike which could threaten the economic recovery, as growth remains stagnant with the quarterly GDP at mere 0.5% in Q1.
What happened during the first half of 2011? Too much news and too many decisions from the market, What will happen in the second half? Valeria tell us in the article below “TUG OF WAR: Growth vs. Inflation”. This is the fifth issue of our FXstreet.com mid-year check up series, today delving into the situation in the UK with the Pound as the main character.
Tug of War: Growth vs. Inflation
By Valeria Bednarik, Forex Analyst for FXstreet.com
With the crisis the world is living through right now, if there is something to say about the UK it is that their monetary independence is both a blessing and a curse. Back in 2008 when the financial world collapsed following the US housing mortgage crisis, that economic independence had let the UK act in proper manner, and the BOE quickly reacted by cutting rates, creating the assets purchase facility program, and in general favoring a re-balancing of the economy. Problem is, things haven´t gone according to the plan, despite the huge devaluation the UK is still struggling to recover.
And with growth still remaining mostly stagnant, the recovery path seems harder day after day with overwhelming negative fundamental data and rising inflation.
At one point, we may wonder whether the UK is actually advancing or at the verge of a another financial collapse. Especially if things remain unchanged and Chancellor George Osborne continues to insist that the government hold its nerve by not deviating from his plans to cut borrowing, despite the increasing evidence that this policy may be damaging growth.
Economic Growth Stagnant
The United Kingdom GDP expanded just 0.50% over the first quarter of 2011, compared to the previous quarter. From 1955 until 2010 the UK´s average quarterly GDP Growth was 0.59% reaching a historical high of 5.30% in March of 1973 and a record low of -2.50% in March of 1974.
While among the worlds’ most developed economies, it´s growth has never been close to outstanding, as we see from the previous figures, yet the main reason of the latest disappointing results may be found in a stalling manufacturing sector, a contraction in construction, and a sharp drop in oil and gas extraction. If something is giving support to the Pound these days, it is the strong oil near $100 a barrel. The bottom line is that when it comes to economic growth, the risk remains to the downside in the UK.
When it comes to the labor sector, the unemployment rate was 7.7% back in May. That’s barely above the 7.22% average from 1971 to 2010, so despite it being not a positive figure, at least the sector is among one of the better all things relative. The latest reading in June showed the unemployment rate was down 0.1% over the quarter and 0.1% on the year. Still the report showed there where 1.52 million people claiming unemployment allowances which was an increase of 24,500 from May. In particular, the number of men claiming allowances increased by 15,000 to reach 1.03 million and the number of women claimants increased by 9,500 to reach 493,900, the highest figure since August 1996.
The Minister for Employment Chris Grayling said this month: “There continue to be some encouraging signs in the labor market figures, particularly with the continued rise in private sector employment. It’s really important that we continue to support the economy and encourage businesses to invest and create jobs. However, we do not underestimate the scale of the challenge that we face to help people into employment.”
Inflationary Pressure on the Rise
While the UK has cut down their interest rate benchmark to 0.50% where it has remained steady since March 2009, inflation keeps rising above the BOE´s tolerance limit and was last reported at 4.2% in June over the year. From 1989 until 2010, the average inflation rate in the United Kingdom was 2.72% reaching a historical high of 8.50% in April 1991 and a record low of 0.50% in May of 2000.
While back in May this year, the BOE’s governor Mervyn King said that inflation was “uncomfortably high,” and officials signaled they may need to raise interest rates later this year even as the economy struggles to build momentum. Interestingly however, the fact is that just one month later the central bank turned back towards it´s prior dovish stance, with 7 out of 9 members voting to keep rates on hold. The flip from hawkish to dovish, has come after the committee lost its hawkish member, Andrew Sentance, in May this year.
And while the idea of keeping rates low to jump-start growth remains, inflationary pressure keeps rising. The thing is that the BOE would rather focus on containing inflation, rather than stimulating employment or growth. If inflation keeps rising towards 5.0% as Governor King expects, the BOE will may have no choice but to rise the benchmark in an attempt to control it. At the same time, economic growth will hardly gain traction without the help of the central bank, while the UK continues applying their assets purchase program, or QE, as they can’t remove it but only extend it: the quantitative easing program is another inflation generator for the economy. Up to this point, the tug of war the bank is trapped in will not result in a positive outcome no matter which side wins.
The BOE will have no choice but to sacrifice growth to contain inflation. While a rate hike may be expected by the end of this year, and we usually understand rate hikes as positive for a currency, I won’t be expecting too much strength for the Pound, not even after a rate hike. Unless some signs of recovery start improving the sentiment over the UK economy, the Pound is set to extend its losses over the second half of 2011.
Interesting stuff…. Thanks to www.fxstreet.com
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Sterling had a minor spike this morning as inflation data was released this morning, however following the release rates have dropped back fairly close to where they started the day off again, apart from against the Japanese Yen, as i’m sure followers will be aware this one hasn’t exactly been stable ever since the horrific disaster.
A great overview of the latest inflation figures can be viewed here http://www.bbc.co.uk/news/business-13421614 however if you wish to discuss the implications then contact me on firstname.lastname@example.org or fill in the form on the right hand side of this page.
The Pound is once again on a knife edge this morning ahead of unemployment data due out this morning. Should we see another negative release for the U.K we could be pushed even closer to the 1.10 level following the surprise fall in inflation yesterday.
Following that release the Pound dropped against most major currencies and even I didn’t expect that! As I have been saying for some time now this market really is not one to play around with and the outlook doesn’t look like it will change for the time being.
Interest rate hikes in the U.K appear once again to be drifting away and with that so does the value of the Pound, this time last year most analysts were predicting three rate hikes in 2010 and Sterling to be way into the 1.20s by the end of last year, it nearly got there, however we have had no rate hikes still and may not for some time and the Pound has taken a huge knock again against most currencies.
The only shining light for those with currency to buy is against the Dollar, we are still at great levels as the States appear to also have lots of problems of their own and are also quite a way off of a rate hike.
An interest rate hike is generally seen as positive for the currency concerned as it makes it more attractive to investors and the markets move on rumour as well as fact so the mere chance of a hike can shift a currencies value quite rapidly.
If you are buying a property abroad, have business transactions to carry out or need to get money overseas for any other reason and want the best exchange rates, just fill in the form on the right hand side and one of the experienced traders that write on this blog will be in touch shortly.
Good morning readers,
A quick post this morning as I can see a busy day in the office, this morning at 09:30am brings key inflationary data which could be critical as to what the Bank of England do next with interest rates.
Although high inflation appears to be a global problem, should figures come out higher than expected then I still believe we will see Sterling strength and an increased possibility of a rate hike in the U.K sooner rather than later, for those who are not aware a rate hike is generally seen as positive for the currency concerned and markets move on rumour as well as fact.
Couple this with Trade Balance figures coming out at the same time and it does lead to an eventful morning, last time out the Trade Balance was worse than expected and should this happen again we may see this hold back any Sterling strength.
The other side of the coin this morning is that if inflation is lower than last month and appears to be naturally dropping we may see Sterling weakness as it reduces the need for a rate hike.
Expected is 4.4% for CPI and personally although the day has started off with weakness for the Pound I feel we will be up by the end of the day against most majors, however you never know…..
The pound has continued its run of bad form in early morning trading, dropping against most majors, as an interest hike in the U.K appears to be sailing even further away, this is not great news for those of you looking to purchase a property overseas or make an important business transaction.
A member of the BOE stated that they now expect inflation to drop to 1.5% in 2012. Adam Posen stated that the Governments austerity drive and a weak economy would lead to a decline in consumer spending.
This now suggests that we may be further away from a hike in interest rates in the U.K and for those of you that are not aware a hike in rates is generally seen as positive for the currency concerned as it makes it much more attractive to investors, so these comments alone have now led to further Sterling weakness.
We have athe GDP revision out tomorrow morning which is the next release of note so do keep your eyes peeled for that one, if you have a transfer to make or a genreal enquiry about a specific currency pairing then please do feel free to contact me directly by filling in the enquiry form on the right hand side of this page and I will be more than happy to help.
Good morning readers,
Today inflation is going to be the main focus for the Pound as we see a release at 09:30am which may give further information as to how much time the BOE have to play with before an interest rate hike becomes a necessity.
It appears inflation is still slowly creeping up and although some believe it may naturally drop away over the course of 2011 it is more than likely we will need a rate hike in the coming months to start pushing it back in the right direction.
People in the U.K have become used to lower interest rates and some are still spending freely keeping inflation high and potentially setting themselves up for a fall further down the line, therefore by raising interest rates it should slow spending and also lower inflation slightly.
Obviously this may cause problems for many if this is done too early however an interest rate hike is generally seen as positive for the currency concerned as it makes it much more attractive for investors to invest money into that particular economy, so anyone waiting for Sterling rates to go up may want to keep a very close eye on comments surrounding rate hikes in the near term.
If you are buying or selling a property abroad, have business transactions to carry out or simply need to get money overseas for any other reason and want the best exchange rates, just fill in the form on the right hand side and one of the experienced traders that write on this blog will be in touch shortly. Alternatively, if you would like assistance in finding your dream home abroad then feel free to visit www.overseaspropertysearcher.com and let one of our property experts make the hunt much easier for you.