BoE Rate Cuts Still Unclear

By Simon Eastman

The pound struggled last week, as the shadow of interest rate cuts loomed over it.

Sterling dropped across the board in the early part of last week, taking significant losses against both the euro and US dollar, as well as many other major traded currencies as traders speculated as to what the Bank of England would do at their interest rate meeting on Thursday.

Thursday came and whilst no cut was given, the 9 members of the Monetary Policy Committee (MPC) voted to leave rates unchanged with a 7-2 split, with the two members voting for a cut. So, whilst no cut was seen, the pound continued to struggle as the Bank adjusted their outlook on inflation and indicated that further data releases would be needed to give further guidance on their interest rate policy.

As traders speculated this meant they were leaving the door open for a June rate cut, the pound stayed down, hovering just above the resistance floors against the greenback and the single currency. Bank member Huw Pill, the Banks chief economist, commented that confidence among members that the time to cut rates is coming but that further evidence would be needed ahead of making the final decision.

For those of you out there with sterling in hand, this means we are likely to see sterling remain under selling pressure as investors seek to shrink their sterling holdings and find more attractive avenues instead. Anyone with an upcoming requirement, might be prudent to look at locking in their exchange rate for any purchases needed just in case the indicators start pointing firmly towards a rate cut in June and we see markets price that in, leading to a loss in value for the pound and your buying power. There are various contracts which might suit, so speak to one of the team today for some friendly guidance.

Whilst the weekend brought a rather tempestuous and politicised Eurovision Song contest, with plenty of drama, which saw the Dutch disqualified, protests, “peace & love” speeches mid song and the UK’s Olly Alexander handed a “nil points” from the public vote, the week ahead could be just as volatile with a swathe of key data releases from across the major economies. The highlights and ones to watch are listed below – feel free to get in touch with the A Place in the Sun Currency team, to discuss the possible repercussions for your pound as the week goes on.

Monday – RBNZ inflations expectations. Federal Reserve members Jefferson & Mester speeches.

Tuesday – German inflation, UK average earnings, unemployment, and claimant count. BoE Huw Pill speech. German & EU ZEW economic sentiment surveys. US PPI inflation readings.

Wednesday – EU employment change, GDP and industrial production. US CPI inflation readings and retail sales. The Bank of England MPC report hearings.

Thursday – AUD unemployment rate. US jobless claims, housing data and industrial production figures, plus a speech by Fed members Mester & Bostic.

Friday -Swiss industrial production. BoE member Mann speech. EU CPI inflation.