February 21, 2018

Pound to euro exchange rate

14 September 2017, 11:05 | Virginia Santiago

UK unemployment at 42-year low

GBP  USD Retail Sentiment

INFLATION ROSE unexpectedly to 2.9 per cent in August, as the slump in sterling since the Brexit vote continued to have a powerful impact on domestic United Kingdom prices.

Increasing the base rate could lower inflation, and the Bank has a mandate to target a rate of 2%.

CPI measures the weighted average of prices of a basket of goods and services, such as food, transportation, and medical care.

GDP rose by 0.3% in the second quarter, as expected in the MPC's August projections, although initial estimates of private final demand were softer than anticipated.

As well as surging against the dollar, the pound also jumped against the euro, rising by about one and half euro cents to 1.1269 euros. There were also comments that slack in the economy was diminishing at a faster pace than expected while inflation in October was likely to move above 3.0% compared with previous expectations of around 3.0%.

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The consensus expectation is for a 7-2 vote on Thursday to keep rates on hold at 0.25 percent, and no change to the 435 billion pounds of government bond holdings or 10 billion pounds of corporate debt.

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The pound has jumped more than 100 pips and is now trading at 1.33 against the dollar.

However, there was a direct hint from the committee that the bank may raise rates soon due to better than expected growth figures, strong employment numbers, and creeping inflation. Could we see a series of slow and gradual rate hikes a la Federal Reserve, before the BOE concentrates on its balance reduction programme? The strength of the common currency, which has now rallied by around 15% since the beginning of the year, is providing a major headache to the European Central Bank as it gears up to tighten its monetary policy for the first time in six years.

Foreign exchange markets raced to price in an earlier-than-forecast interest rate rise at the Bank of England and in the process pushed the Pound notably higher against the majority of global currencies.

Paul Hollingsworth, UK economist at Capital Economics, added the minutes struck a considerably more hawkish tone than in August, which could pave the way for a rate increase before the end of the year.

Britain's pound headed back towards five-week highs around $1.32 on Tuesday ahead of inflation data that should support the case for a more hawkish message on the outlook for interest rates from the Bank of England this week.

Next week is quiet on the data front for the United Kingdom, however we do have the Fed funds rate on Wednesday, which will give us a better idea about their thinking.

"Rate hikes by the BoE at this point would be counterproductive as it could undermine economic activity at a time when both consumer and business confidence are already flagging", said Abi Oladimeji, chief investment officer at Thomas Miller Investment.

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