Bank of England comments key to the Pound’s next move

By Lauren Buckner

The Pound has been enjoying some strength this week trading at the best rates against both the Euro and the US Dollar this year so far.

Renewed risk appetite away from the US Dollar could be a factor in this rise, given the ongoing pressures facing the US banking system.

Following on from the collapse of Silicon Valley Bank, the US is going through its worst banking crisis since 2008. The most recent collapse of First Republic Bank, the largest bank to fail to date, continues to send jitters through the market. This makes the US Dollar, and funds physically lodged in the US, less attractive to investors and therefore has renewed focus on currency positions of which the Pound has benefitted.

The Pound has also been given a clear boost ahead of the Bank of England’s interest rate announcement today. The BofE are widely expected to raise interest rates by 0.25pc, its 12th consecutive raise in rates, to 4.5pc, which has no doubt been priced in to current rates of exchange. However, a heavy focus will be on the accompanying press conference and the tone from the BofE around further rate rises and an increasing uncertainty around the message expected could be problematic for the Pound.

The expectation has been for the Bank to signal a slow down in further rate rises, with only another 50 to 75bps raises to be expected through to year end and Andrew Bailey – the governor of the Bank of England – will not hesitate to comment on any stretched market expectations for faster or further hikes in interest rates, something that has previously seen the Pound fall.

However, the UK economy has so far outperformed expectations for 2023 as consumer demand remains broadly resilient despite the cost of living crisis. With inflation still sitting stubbornly over 10per cent, a significant distance from BofE targets the argument for further and faster raises to the interest rate is clear. Sterling’s next move from here could be directly related to the comments made this afternoon.

GBP to Euro also faces significant technical resistance over the 1.15 threshold. We are still to see a clear break through this level, another potential block for further increases. Euro buyers should seriously consider taking advantage of these current levels ahead of the Bank’s meeting and press conference this afternoon. Please make contact with the team at A Place in the Sun currency to discuss further.