Whilst the pound has risen a little this morning following the latest UK Inflation data, we have dropped from the recent highs last week against most of the major currencies.
Today’s move is the result of Inflation data coming in as the year on year Inflation data was shown to be higher than expected, putting pressure on the Bank of England to hike interest rates further.
Lately, expectations on further interest rate hikes had softened slightly, with markets predicting the pace of interest rate hikes would cool as the year progressed.
This latest data calls that into question, with the year on year figure at 10.1% versus the 9.8% expectation.
Interest rates are a key factor in determining the relative strength and weakness of a currency, and in predicting future currency movements.
Looking to tomorrow, the all important Bank of England interest rate decision, markets will be closely monitoring the news, with plenty of potential for a hike ahead which in principle would be supportive of a currency.
Generally speaking, a higher interest rate makes a currency more attractive to hold, and encourages investment.
Looking to the future, markets may well have priced any hike in already but we can still see movement on the event. Many of the hikes from the Bank of England have been ‘dovish’, in that they have raised rates but been cautious about future ones which in some cases has seen the pound weaker.
The pound is softer from last week’s highs, and this can be put down to interest rate expectations but also the recent banking crisis fears, where sterling has been under some pressure as markets become slightly fearful over the global economic outlook.
The dollar strengthened in the face of the uncertainty, dragging GBPUSD levels down, which in turn dragged the pound lower against many of its counterparts, an important reminder that FX is very unpredictable and rates can suddenly shift catching you unaware.
There is plenty to keep us entertained on the economic data front this week with the US Federal Reserve interest rate decision this evening, and UK Retail Sales Friday.
If you have an upcoming exchange, and wish for more information on what could drive your rate, plus obtaining some further information regarding how to achieve the best rates, please do get in touch.