By Matthew Vassallo
Sterling has, thus far, managed to avoid any further significant selloffs during Tuesday’s trading, following its sharp downturn against both the EUR & USD last week.
The Pound saw its early month gains disintegrate against both major currencies, following the Bank of England’s somewhat unexpected decision to keep UK interest rates on hold during their policy meeting last Wednesday. The impact of this decision was compounded by the central banks subsequent monetary policy statement, in which some BoE members seemingly tried to dampen expectations that any prospective rate hike was imminent.
The BoE’s stance may well have caused investors, many of whom had likely priced in the anticipated rate hike, into a fire sale of their GBP positions. The result was a relatively significant devaluation for Sterling, which lost almost two cents against both the EUR & USD.
However, as with any ‘fire-sale’ there is often an overcorrection and with the markets still firmly driven by the opinion that a rise in UK interest rates is necessary to help control spiralling inflation, it would seem the Pound has once again found at the very least, a strong pocket of support amongst investors.
This was further illustrated following comments by BoE governor Andrew Bailey on Monday, in which he reiterated his recent comments that a rate rise will be unavoidable if inflations levels continue to increase at their current pace.
The question investors will be asking themselves now is whether the prospective rate hike and a possible change to the BoE’s monetary policy strategy, will be implemented during their final annual meeting in December?
In other news Boris Johnson continues to come under fire from both sides of the house for the government’s handling of the Owen Paterson corruption scandal, whilst the PM has also been criticised in some quarters over the UK’s recent trade deals with Australia & New Zealand, both of which have been perceived by some as lightweight and financially unviable.
With the USD gaining support following some better-than-expected inflation and jobs figures, it will be interesting to see how the Pound reacts to these political & economic developments over the coming days.