When buying or selling pounds for a business transaction, property purchase/ sale or when making a one off transfer, it’s important to get two factors right before you make the conversion. Firstly to choose a brokerage that offers fantastic rates of exchange. Secondly, understanding factors that impact exchange rates, which will help you to make an informed decision of when to purchase.
For the reference of the reader, over the years, many of my longstanding clients have come from reading an article that I have written, as I have saved them money on each and every transfer they make.
Sterling this week.
Sterling soared across the board this week against all of the major currencies making buying a foreign currency cheaper. UK inflation numbers were released at 2.9%, which was higher than the Bank of England’s forecast. This prompted the Bank of England to provide a hawkish statement after the interest rate decision two days later.
The Bank of England kept interest rates on hold which many economists predicted, however following the decision members of the monetary policy committee made a surprise announcement and stated that the Bank of England could raise interest rates in the upcoming months. Many economists are predicting this could occur as early as November, as they believe inflation will continue to rise and break through the 3% fresh hold.
Regular readers will be aware that exchange rates fluctuate before the event, which is known as ‘pricing in’. Many economists have predicted the 2-4% rise in sterling exchange rates across the board over the last two weeks, is the market pricing an interest rate hike as early as November.
Over the last 12 months the Bank of England have made it clear that the rise in inflation is because the pound has devalued substantially because of Brexit. Consequently I believe the strong inflation data coupled with positive housing market and retail sales numbers over the last couple of weeks has provided the Bank of England with an opportunity to strengthen the pound in a bid to stop inflation rising further.
Therefore the chances of interest rate hike this year, I believe is unlikely which leads me to think that the shift in sterling exchange rates is a spike in the market and further improvements is unlikely.
What to expect this week
As sterling has soared across the board last week, I wouldn’t be surprised to see sterling have a slow start to the week. The key economic event to look out for that will influence sterling is UK Prime Minister Theresa May’s press conference Friday. EU Parliament negotiator Guy Verhofstadt has insisted Theresa May will make an “important intervention” and if this is the case sterling could rise or fall dramatically.
When buying or selling pounds it’s important to analyse the other currency that you are converting as that country will be releasing economic data throughout the week. Some key data releases are Eurozone inflation Monday morning, Reserve Bank of Australia minutes Tuesday morning and the US interest rate decision Wednesday afternoon.
If you are making a currency conversion in the upcoming weeks or months, I would recommend emailing me with the currency pair you are converting (GBPEUR, GBPUSD) the reason for your transfer (business transaction, property purchase) and the timescales you are working to and I will respond to your email with my forecast and the process of using our company [email protected].
Enjoy the rest of your weekend and I look forward to speaking with you Monday morning.