British Pound Beaten By Inflation Report

Posted by Allison on 1 September 2009, 15:24

We all know that the pound has actually been doing rather well in recent weeks.  Compared to the freefall it went into against the US dollar last year, when a $2 pound finished up at a low of $1.3630 towards the end of January this year, it has picked itself up and been doing well in getting going in the opposite direction again.

But once again we are in a period where it could all go badly wrong; perhaps not as wrong as it did do previously, and perhaps not for as long.  But with an Inflation Report from the Bank of England due to be released on Wednesday 12th August, it could be that the pound is in for some hard times once again.  The release of this report has been announced on many websites, including the Wall Street Journal.  You can read the news story here.

In fact when you take a look at the exchange rate between the British pound and the US dollar so far this month, it would almost appear that the idea of a negative report has done damage so far anyway.  On the 1st August the pound stood at 1.6524 against the US dollar.  Considering the rates it had earlier in the year this was some achievement.  Even some three weeks earlier the exchange rate was down at 1.6071, so you can see the difference on the currency converter.

But once the new week kicked off in August, the exchange rate shot up to 1.6842.  Now that is what we call a nice start to the week!  And things kept on getting better as the pound pushed ahead to 1.6953 on Tuesday and finally broke through the $1.70 barrier on Wednesday, claiming 1.7013 in the process.  This was one week before the Inflation Report was due to be released.

And since then things have been dropping.  The next day brought an exchange rate of 1.6858, followed by 1.6758 to round off the week.  And if we thought a period of respite over the weekend might do the trick, we were clearly very wrong.

In actual fact people were thinking ahead to the impending report by this point.  This cautiousness no doubt had something to do with the performance the pound put in over the next couple of days.  Monday finished on an exchange rate of 1.6638 US dollars to the pound, and that slipped further to 1.6502 the very next day.

Now we are at the eve of the report’s release, and it will be interesting to see whether the pound goes up or down by the end of Wednesday.  The contents of the report will clearly be watched by those who need to, and the consequences will certainly be seen on the currency markets.  Whether or not the pound will benefit from the report is anyone’s guess, but the overall feeling is not particularly a good one.

So we shall see what happens next.  The pound has certainly lost a bit of momentum recently, so it could do with some positive publicity here.  But if that doesn’t happen it will need to dig deep and find something from somewhere to solve the problem.  We are almost resigning ourselves to a drop in the exchange rate again – but for how much and how long, no one knows.