The Pound found itself at the lowest rate in four months against Euro and the US Dollar. This occurred when the inflation rate was announced. It was more than expected. This is likely to keep the currency stagnant as the Bank of England (BOE) is unlikely to increase the interest rate.
It was expected that BOE would be the first among the advanced economies to increase interest rate. The Governor, however, is reluctant to do so, on grounds of excess capacity of wage and labour. The upcoming MPC meeting is going to be crucial for the same reason.
According to David Holmes from Forex Bonus, to ensure volatility the forex needs a consolidated policy from the big seven economies. This year saw an efficient strategy that contained the risk due to the political unrest created by Russia, Ukraine, Syria and Gaza. Many are of the opinion that the Federal Reserve’s zero rate policy will create yet another asset bubble like that of 2008. This bubble might burst again causing a disaster for the economy.
There are three things that investors will keenly watch out for: various reports on inflation formed by policymakers, the minutes of the meeting of the central bank and Janet Yellen’s speech to be given at the economic symposium.
The First Factor
The inflation in the UK was expected to fall this month, but the result has been better than expected. No one expected this drop in inflation. This gives BOE the opportunity to keep interest rates unchanged.
Investors should feel comfortable due to this fact. The rate of inflation notably fell from 1.9% to 1.6%. Meanwhile, the GBP is at its lowest point in four months. The market, however, will very keenly focus on the meeting that is supposed to happen tomorrow.
It remains to be seen whether any of the nine economies will jump the gun by increasing the rate of interest. The lack in growth of wage will perhaps be the point of consensus.
The European investors were trading at gains as per the analyst after tracking the Wall Street movement. Although there has been no fresh news of Russia-Ukraine scenario, the market still remains delicate nevertheless.
However, no worse movement is ensuring that there is room for some risk trading at the European stock markets. There is no probable cause that is likely to affect the market to take the Euro further down. That being said, every investor will be keenly following the Jackson Hole symposium before investing further.
The Aussies Likely to Hold Ground
Investors who take interest in the AUD currency and get financed in the Euro will find relief from the Central Bank of Australia. Governor Stevens clearly indicated that the bank is not going to increase interest rates and that it will be on hold for quite some time in the future.
The most frequent investors prediction remains that the next interest hikes is only likely by the mid of the year 2015. This can only happen on account of increase in unemployment and a weaker commodity.