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Weekend - BoE's Mann says energy price cap could boost other inflation

techsm5

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The Bank of England (BoE) acts as the UK’s central bank and is one of the main drivers of monetary policy in Europe. As one of the oldest central banks in the world and established in 1694, the BoE is owned by the British government. Its central mandate is to maintain and target interest rates while using other tools to help stimulate or contract the economy. Additionally, the BoE is responsible for the production of UK banknotes as well as overseeing the major bank payment systems. The bank not only helps create monetary and financial stability in the UK, but also has a huge influence over the country’s currency, the British pound. How does the Bank of England (BoE) affect Forex traders? The BoE is one of the most watched central banks by forex traders, along with the US Federal Reserve and the European Central Bank (ECB). FX traders are regularly on the lookout for all central bank updates given their potential to affect the Pound and many other currency pairs. The euro, for example, is strongly correlated to the pound. In addition, the bank also has a variety of monetary policy tools that could impact the pound. One of the most common of these has been quantitative easing (QE), among others, which can increase or decrease the value of the pound. Beyond foreign exchange, the BoE helps fight domestic inflation, changing interest rates to stimulate the economy. Many investors are familiar with the BoE interest rate because this metric is key to a variety of economic barometers.

The Bank of England (BoE) acts as the UK’s central bank and is one of the main drivers of monetary policy in Europe. As one of the oldest central banks in the world and established in 1694, the BoE is owned by the British government. Its central mandate is to maintain and target interest rates while using other tools to help stimulate or contract the economy. Additionally, the BoE is responsible for the production of UK banknotes as well as overseeing the major bank payment systems. The bank not only helps create monetary and financial stability in the UK, but also has a huge influence over the country’s currency, the British pound. How does the Bank of England (BoE) affect Forex traders? The BoE is one of the most watched central banks by forex traders, along with the US Federal Reserve and the European Central Bank (ECB). FX traders are regularly on the lookout for all central bank updates given their potential to affect the Pound and many other currency pairs. The euro, for example, is strongly correlated to the pound. In addition, the bank also has a variety of monetary policy tools that could impact the pound. One of the most common of these has been quantitative easing (QE), among others, which can increase or decrease the value of the pound. Beyond foreign exchange, the BoE helps fight domestic inflation, changing interest rates to stimulate the economy. Many investors are familiar with the BoE interest rate because this metric is key to a variety of economic barometers.
Read this term Catherine Mann, member of the Monetary Policy Committee, spoke this weekend.

As part of a roundtable at the annual conference of the American Economics Association in New Orleans.

Mann argued that maintaining the price of energy allowed consumers to spend on other goods and services:

  • “Caps on energy prices allow for the redirection of spending to the rest of the consumption basket and therefore potentially higher inflation than would otherwise be the case for all of these other products”
  • “It’s something we’re looking at carefully.”

Mann continued, noting concerns even when caps are removed:

  • “What will happen when the corks are removed?”
  • “Will be inflation

    Inflation is defined as a quantitative measure of the rate at which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general price level where a given currency is effectively buying less than it has in previous periods. In terms of valuation of strength or currencies, and by extension foreign currencies, inflation or its measures are extremely influential. Inflation stems from the global creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply relative to the wealth produced (measured with GDP). This thus generates demand pressure on a supply that is not increasing at the same rate. The consumer price index then increases, generating inflation. How Does Inflation Affect Forex? The level of inflation has a direct impact on the exchange rate between two currencies on several levels. This includes purchasing power parity, which attempts to compare the different purchasing power of each country according to the general level of prices. By doing so, it helps to determine the country with the most expensive cost of living. The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates in the forex market. Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on the exchange. Conversely, too low inflation (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the foreign exchange market.
    Read this term some sort of rebound? What will energy prices be at that time? We do not know.

Seems to be looking for trouble. Hush. Surely if price caps are removed and energy prices rebound, then consumer spending elsewhere and therefore inflationary pressures on other goods and services would decrease… that would fit the reasoning, yes?

Bloomberg had the report, closed.

.

techsm5

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