Sterling exchange rates and the week ahead

GBP EUR Exchange Rate: Weekly Review July 16  

Sterling exchange rates saw significant gains against the Euro and USD over the course of last weeks trading. Since the poor UK GDP figures which were released a couple of weeks ago, the UK has witnessed some much improved data releases.

Early last week we saw figures in the construction and manufacturing services sector showing signs of improvement and on Friday we had the Halifax housing data showing prices had risen by 0.8% from the previous month. All these releases contributed to the pound gaining against most of the major currencies including a spike to a 12 week high against the U.S Dollar.

By far this week’s biggest data release for the UK will be the interest rate decision. Recently one of the main drivers for sterling is the growing speculation that the BoE will raise rates over the coming months.

Last months minutes showed that two members of the MPC voted for a rate rise. The chances of a rate rise this week is however unlikely as it may hamper economic growth and could potentially do more harm than good in the near term. The only reason to raise rates at present would be to try and curb inflation and with the UK so dependant on overseas pricing like oil it is hard to see inflation falling rapidly with a rate rise. So it leaves the BoE with a major headache and it will be interesting to see how things pan out this Thursday.

My personal view is that over the next few months there will be spikes for sterling purely on speculation that there will inevitably be a rate rise. For those of you holding out for this though you must remember that with all the austerity measures that have been introduced, the UK will find it hard to see significant economic growth. (Watch out for January’s GDP estimate this Thursday) The public sector is being hit hard and the knock on effect on unemployment will be huge. Just this weekend we learnt that around 10 thousand police jobs will go over the next 2 years. How many more jobs are in line to be lost? For this reason be extremely cautious if you are waiting for an interest rate rise to see a rise for the pound as you may be waiting until 2012 and lose any gains that we may see in the mean time.

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