By Ashley Finill
It’s been another tough week for the pound as interest rate rises has handed fresh lows against the majors after what had seemingly been a positive few weeks for Sterling. Following the announcement of the new prime minister Rishi Sunak brought back confidence in investors, stabilising Sterling, and gaining a few cents over the course of the next couple of weeks. However, yesterday’s announcement from the Bank of England to raise interest rates again, this time by 75 basis points to 3%. Historically, interest rate rises in the UK would provide Sterling with a boost in the currency market, however 2022 has seen the Pound diminish on every announcement. This has been down to the reasoning on the rate increase as the Bank of England has had to step in to help with the alarming rate of which inflation is rising in the UK. The governor of the BoE Andrew Bailey gave a grim outlook of the UK economy suggesting that the UK is now in recession and is likely to be there for 2 years as he predicted eight successive quarters of contraction. With the cost of living continuing to soar inflation will naturally rise and as a result the bank of England will have to step in to come to the UK economy’s aid but at a price for higher payments on mortgages. This current financial crisis is heading back to that of 2008 which saw the UK economy crippled entering into a recession with record unemployment in the UK. This was also alluded to by Andrew Bailey yesterday who said that the unemployment rate will most certainly increase as businesses will look to cut costs which is likely to harm the workforce. This grim forecast doesn’t bode well for the frail unsupported Pound, and we have already seen a shift the currency market over the past 18 hours since the announcement with Sterling losing just under a cent on the Euro and over 3 cents on the Dollar following the FED’s interest rate hike on Wednesday.
FED increases rates, fresh lows for GBP/USD
Late on Wednesday’s trading the Federal Reserve bank in the US announced that they were raising interest rate rises again in the states by 75 basis points to 4%, it’s highest increase since the crash of 2008. This increase was expected to help slow down the rapid rate that inflation is increase in the US, much like over here. However, the announcement from the FED helped further strengthen the already buoyed up Dollar. This was a result of the FED chairman Jerome Powell sent out a signal that drastic hikes like this one are to slow down and hinted that only a 50-basis point increase in December is likely to be needed. He said that the era of outsized hikes was over, but more work must be done. After the event, the US Dollar had gained significantly on both Sterling and the Euro, gaining nearly 3 cents on Sterling and nearly 2 cents on the Euro. This has again presented a great selling opportunity for anyone who is looking to bring back Dollars into GBP or Euros, as we have seen these gains can be short-lived so it may be prudent to contact your account manager, so you don’t miss the boat on the ever-changing course of the currency stream.
Data due today and next week
As we see out what has been a very busy week for data releases there as still a few important releases to take note of today as we come into the weekend. Starting in the EU at 9am S&P PMI is posted, also the ECB president Christine Lagarde speaks, this may be an early market mover this morning should she give any indication on the ECB’s stance on potential rate increases in the future. At 12.30pm the US release their unemployment rate, this again is likely to be a market mover in the USD markets, another reason why it may be a good idea to act quickly should you want to take advantage of current rates before this announcement. Lastly, in Canada the unemployment rate is announced at the same time at 12.30pm, the figure is expected to increase only slightly from the previous month of 5.2% to 5.3%.