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August 21st, a survey showed on Thursday. British businesses had their strongest month in a year, driven by a rebound in the services sector. The preliminary S&P Global UK Composite PMI for August rose to 53.0, the highest since August last year, while market expectations only predicted a slight increase to 51.6. Chris Williamson, chief business economist at S&P Global Market Intelligence, said that after a sluggish spring, the pace of economic growth accelerated in the summer. "However, survey results from order books show that the demand environment remains uneven and fragile. Businesses reported that they are concerned about the impact of recent government policy changes and are also uneasy about broader geopolitical uncertainties." The services PMI rose to 53.6, but the manufacturing PMI fell to 47.3, further below the 50 growth threshold and hitting a three-month low as factories were hit by the global trade war led by Trump. Further complicating the Bank of Englands situation is that service industry companies raised prices at the fastest rate in three months.The UKs preliminary manufacturing PMI in August hit a three-month high, the preliminary services PMI hit a 12-month high, and the preliminary composite PMI hit a 12-month high.The onshore RMB closed at 7.1778 against the US dollar at 16:30 on August 21, up 15 points from the previous trading day.The UKs preliminary composite PMI for August was 53, expected to be 51.6, and the previous value was 51.5.The UKs preliminary services PMI for August was 53.6, in line with expectations of 51.8 and the previous value of 51.8.

How national interest rates affect exchange rate?

Eden

Oct 25, 2021 13:27

All other factors being equal, higher interest rates in a country increase the value of that country's currency relative to nations offering lower interest rates. However, such simple straight-line calculations rarely exist in foreign exchange.

Although interest rates can be a major factor influencing currency value and exchange rates, the final determination of a currency's exchange rate with other currencies is the result of a number of interrelated elements that reflect the overall financial condition of a country in respect to other nations.

Factors in Currency Values

Generally, higher interest rates increase the value of a country's currency. Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country's currency.

Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value.

This simple occurrence is complicated by a host of other factors that impact currency value and exchange rates. One of the primary complicating factors is the relationship that exists between higher interest rates and inflation. If a country can achieve a successful balance of increased interest rates without an accompanying increase in inflation, its currency's value and exchange rate are more likely to rise.