Bank of England hold rates at 5.25%

By Matthew Boyle

Over the last week, exchange rates slowly declined ahead of the Bank of England interest rate decision yesterday.

There was growing speculation the Bank of England would or are shortly going to cut interest rates, lowering them from 5.25% – a 16 year high. This would be the first-rate cut made by the 3 main central banks following a long period of a race by all to hike rates in a bid to curtail rising inflation levels.

Growing speculation of a cut saw the Pound lose ground as market rates adjusted for this – lower interest rates are less appealing for foreign investors due to lower returns and the effect on the long-term bond markets. This was the cause of the slow decline in GBP rates and at market open yesterday GBP>EUR was around a cent down from the previous week’s near 18-month highs, GBP>USD was 2 cents down on the previous week’s trading.

The Bank of England’s announcement yesterday to hold rates gave the Pound some support although didn’t see it reclaim the ground it had slowly lost though, as it is still believed by many, we are close to a rate cut – likely in the coming few months and more importantly for exchange rates still ahead of both the ECB and Federal Reserve.

Inflation is in fact still rising in America, so GBP>USD is one to watch in the coming months as if they hike and we cut big rate swings are likely against the greenback. Get in touch if you have any upcoming USD requirements.

This morning has begun with some good news for the Pound and those needing to buy Euros….UK GDP rose to 0.6% in Q1 of this year, over the 0.4% expected whilst also signalling we are now out of technical recession. As a result, GBP has gained around half a cent against the Dollar and a third of a cent against the Euro from where they were this time yesterday. The higher GDP level not only indicates a better-than-expected performing UK economy but also pushes back the likelihood of a rate cut in the short-term, pushing more strength behind the pound.

For Euro buyers this short-term uplift may be something to take advantage of, particularly given the tight range we have seen GBP/EUR trade in over the last 18 months as it wont be long again before we reach the next hurdle, whether that be expected rate cuts again, or indeed a general election.

As the saying goes, history repeats itself, so you may like to consider placing a limit order which would automatically buy at a given exchange rate – an easy way to target the highest levels of the rate range we are likely to see again in the coming weeks whilst you can.

Speak to your account manager at A Place in the Sun Currency today on 020 8051 8555 for some friendly guidance on how to get the most out of your transfer.