EDITOR’S NOTE: A currency exchange specialist at forex brokers TorFX looks at the factors driving the pound’s exchange rate in the week gone by.
The Pound to Euro exchange rate rallied slightly on Thursday to strike its highest peak since the end of February, as traders cheered the better-than-expected UK wage growth numbers.
However, analysts are concerned that the Pound’s 15-20% post-Brexit depreciation, which has made imports more expensive, will continue to push consumer prices higher at a time when wage growth appears to be plateauing. Consumer spending is the bedrock of the British economy, and as such there is a real risk of economic slowdown if household purchasing power becomes more acutely impacted by falling real wages (inflation outpacing pay growth).
The Bank of England appears reluctant to hike interest rates while the threat of a consumer slowdown looms large, but it will be difficult for policymakers to remain on the sidelines for too long if price pressures continue to surge above the bank’s 2.0% target.
This article is written by a foreign-currency broker working for TorFX, a forex broker established in 2004 to provide foreign exchange and international payments to both individuals and companies. TorFX is authorised by the Financial Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. Their FCA number is 517320. To verify their authorisation, you can visit the Financial Services Register and search the register using their FCA number. SPI is not responsible for the opinions of guest contributors.