In today’s weekend update, we look at inflation data and focus on comparing inflation reports.
This week, the Bank of England left rates unchanged and cut growth projections. This was enough to shock the pound and pushed the pound to a 4 month low against the U.S. dollar and most other currency pairs. Generally speaking, central banks are watching growth paired with inflation. Consistent growth without excessive inflation is seen as an indication of a strong economy. Interest rates and monetary policy are used to keep inflation from getting out of hand during economic growth.
The FOMC has discussed growth with a targeted rate of 2% for inflation. GDP for the U.S. is approximately 2.3% and the U.K. is showing a 0.4% growth rate. CPI for the two countries is 2.5% for both. The FOMC indicated that they would be alright with an inflation rate that surpassed the original 2% target. When comparing growth and inflation the U.S. is showing inflation growing faster than the growth which is considered O.K. as long as inflation doesn’t become excessive. The U.K. has inflation at 2% higher than the growth rate.
Comparatively, we are seeing the U.S. should have an advantage of approximately of 2% annually as of now. We can expect to see the U.S. dollar continue to gain versus the pound. The pound could still outpace other countries and we will consider buying the pound in certain cases but the U.S. dollar has a high probability of continuing to gain through the next quarter.