The Bank of England (BoE) is in a difficult position with inflation set to accelerate towards 4% in the coming months, and economic growth slowing. Rising inflation would usually lead to the BoE increasing interest rates whilst they would normally be cut to stimulate economic growth.
I think it would be fair to say that one of the main economic factors recently has been the ever increasing price of oil. Why should this affect currency values? Well at the moment in the UK our economy is slowing but inflation remains above the 2% target, which is mainly down to high food and energy prices.
Sterling has continued to struggle this month and given recent economic data it is difficult to see which sector will provide the UK currency with the support that it needs. Interest rates were cut by 25 basis points earlier in the month with MPC voting split three ways, although so far the banks have been unwilling to pass this reduction onto consumers.
It has been an interesting month and sterling remains under pressure. The Bank of England voted to keep interest rates on hold at 5.25%. This was forecast, however the minutes indicate a cut in interest rates is just around the corner. Another major factor to sterling weakness was speculation that HBOS was in a precarious financial position.
Underlying confidence has remained fragile this month with persistent unease over the financial sector. The nine members of the Bank of England’™s (BoE) Monetary Policy Committee (MPC) voted unanimously for a rate cut with one member, David Blanchflower voting for a 50 basis point reduction.
It has been an interesting month for economic news and since Christmas sterling has been under pressure, caused mainly by the credit crunch in the US
Those in the UK have long been awaiting positive steps for the pound in the currency exchange market and after it was predicted that house prices were beginning to level out, the pound experienced a 3 month high in the foreign currency market on April 15th, 2009.
Numerous factors affect foreign exchange rates including politics, economic variables, supply and demand and capital market conditions. The latter is of particular interest to those buying Euros, owing to the economic climate in Europe. It’s not limited to business imports – plenty of people need to buy Euros for property purchases abroad.
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The OTC (over the counter) nature of the foreign exchange makes for a highly volatile environment. Trading locations are tightly linked and billions of trades are being made each minute. With only a finite number of currencies to trade, this means that at any one moment there may a large number of price quotations for …