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BoE Inflation Outlook Pushes Pound Close to 7-Week High Against US Dollar

Published: 8 Aug at 10 AM Tags: Pound Sterling, Euro Exchange Rate, Dollar Exchange Rate, Australian Dollar Exchange Rate, Currency Exchange, Euro Crisis, UK, Inflation, Pound Euro Exchaneg Rate, Pound Dollar Exchange Rate,

Yesterday’s Bank of England inflation report, and unprecedented forward guidance regarding interest rate alterations, inspired notable Sterling fluctuations.

Interest rate hikes were linked to the unemployment rate for the first time, with Carney asserting that rates wouldn’t be increased until the jobless rate had at least fallen to 7 per cent.

However, while some industry experts applauded the BoE’s new stance, others questioned its timeline. One noted: ‘The bank may feel very different about the need to tighten policy in the future. While we need to put back our forecast for the rise in interest rates on account of today’s message from the bank, we do not see it being as late as 2016-2017.’

After posting short-lived declines against its peers the Pound swiftly recouped losses as investors processed BoE Governor Mark Carney’s words.

It was expected that the new BoE chief might shake things up, and he certainly didn’t disappoint, with his actions inspiring diverse reactions.

According to chief economist Lena Komileva: ‘Markets have taken the view that the inflation conditionality that can suspend the bank’s forward guidance dilutes the effectiveness of the pre-commitment to keeping rates low for longer.’

The GBP/USD pairing advanced to within touching distance of a seven-week high, and an absence of influential US news meant that Sterling was able to retain gains overnight.

As the European session began this morning the British currency was close to a month high against the Euro. However, after the publication of stronger than forecast German trade balance data the common currency was supported and the GBP/EUR pairing edged from 1.1646 to 1.1607.

During Australasian trade GBP/AUD came under pressure as positive trade data for China bolstered the Australian Dollar in spite of a lacklustre domestic employment report.

Tomorrow’s UK trade balance data (due for publication at 09:30 GMT) is likely to inspire additional Pound movement.

Economists have forecast that the nation’s deficit narrowed in June, but a better-than-expected result could help the Pound extend and consolidate recent gains.
Also of interest will be UK construction output figures (to be published at 09:30 GMT) and US wholesale inventory figures.