By Matthew Boyle
Yesterday saw the European Central Bank raise interest rates, as expected, to 2.5% in a bid to curb higher inflation levels in the Eurozone. The ECB’s July Monetary Policy Meeting Accounts did give markets an early indication of this, and as such a lot of market movement, that might have been caused by the hike, was largely priced in. The single currency has remained range-bound for most of August, caught between an ECB that had already hiked once this year and a growth backdrop in the Eurozone that remains fragile. Consequently, yesterday’s hike in fact saw little material movement in exchange rates.
For the Pound, major forecasters expect UK interest rates to stay on hold through the rest of 2026, as policymakers balance high energy costs, against weak domestic economic growth. However, this is not certain should inflation figures start to balloon again – a possibility given the months of drought, we have experienced and the resulting increase in food prices. This morning UK growth data was released showing the UK economy 0.4% month-on-month in July, against market expectations of 0.1% growth. Whilst this was an unexpected result, rates remain within the recent range, despite this raising the odds of an upcoming interest rate hike by the Bank of England significantly. Whilst an interest rate hike would encourage GBP/EUR rates to push to the upside, concerns over incoming tax hikes by PM Andy Burnham seems to be keeping major speculative movements in GBP/EUR rates dampened in the short term.
Take note, alongside various upcoming data releases next week, we have UK inflation data out so don’t be surprised if we see exchange rates break the recent status quo, particularly if the figure deviates widely from expectation and set against the backdrop of yesterday’s ECB hike.
Across the Pond, the Federal Reserve with its newly appointed Chairman Kevin Warsh, look set to hold rates for the time being, following the recent 9-3 vote to do so. President Trump, in his usual fashion, has waded in putting pressure on the FED, saying unless they cut rates he will stop trading with certain countries. In what was another outlandish move this week, Trump also stated he would give $5k USD to every adult if the GOP (Grand Old Party /Republican party) wins the US mid-term elections… Never a dull day with President Trump!
Notably, next week we have the US interest rate decision and whilst no change is expected, a shift in the FED vote could well see USD rates move.
With President Trump causing trouble once again and GBP and EUR finely balanced for now, both buyers and sellers alike may want to take advantage and remove potential risk. Should the finely balanced seesaw slip the wrong way for you it could be an unfortunate and costly move. If you have a transfer in the coming months you may want to discuss forward contract options, with your dedicated consultant, to protect your exchange rate. Speak to your currency consultant today for some friendly guidance on how to avoid risk and make your money go further.