By Simon Eastman
With inflation moving above the 5 percent mark, it was vaguely considered that the Bank of England might raise interest rates at their December meeting, with a cent gain on GBP/EUR on Wednesday, and sterling on the front foot yesterday early on.
No one considered it was a forgone conclusion though, with most expecting them not to and sterling to drop in value. The Bank had never raised rates in December before and with the Omicron virus ravaging the country, the fact businesses are starting to suffer already, with Christmas functions being cancelled countrywide, made it seem unlikely the Bank would buck the trend and we would probably see rates held.
At midday, the news broke that in fact, the Bank had gone for a 15-basis point hike, leaving interest rates at 25 basis points. The pound leaped against all its major counterparties, but as fast as it had risen, it had started to come back down again. Having peaked a cent higher on the open for GBPEUR, within 2 hours it was over half a cent down again, finishing overall gains of half a cent, below key resistance levels. Cable was a similar story peaking around a cent and a quarter up, finishing the UK trading session just over half a cent up.
Good news for those buyers with sterling, but not quite the gains hoped for from an interest rate hike. The fact the news is diluted by surging Covid case numbers is dampening markets with speculation over post-Christmas lockdowns throwing the economy into turmoil. On that basis, those with a currency transfer to make over the coming weeks might be prudent to get something locked in taking the gains seen yesterday, rather than risk markets dropping should Omicron cause further concern.
As the week concludes, we have a few key data releases to contend with, including UK retail sales, German IFO business sentiment data, EU inflation and a speech from US Federal Reserve member Waller later this afternoon.