Mayday for the Pound?

By Matthew Boyle

It has been a solid few months for the Pound, seeing it test 6 year highs on a few occasions although failing to break key levels of resistance. Turning back the clock to the beginning of December last year it looked certain the Pound would struggle with a minefield of downside risk ahead.  Amidst news the omicron variant was spreading like wildfire in the UK and warnings supply chain issues were set to ravage the UK it all but looked like Christmas would be cancelled and with it GBP rates would plummet.

However, this was not the case.

In a shock move and months ahead of the predicted schedule the Bank of England raised UK interest rates in the first week of December. This precipitated a run of form for the Pound that was not expected – aside from getting a head start on the market with earlier than expected hikes, the UK also managed to avoid any real economic impact from omicron and any of the forewarned supply chain issues seeing Christmas go ahead and everyone to enjoy the big day with their loved ones,  potatoes and brussell sprouts a-plenty.

Fast forward to now and since then we have seen another 2 hikes from the Bank of England as inflation continues to seemingly run out of control. Aside from the heart-breaking ongoing situation in Ukraine it is central bank intervention that is driving market rates.

Last month the Bank of England went quiet with the Easter break but as we enter May they meet again with eyes and ears waiting to see what action will be taken. Make no mistake, this is a crucial and critical time for the Pound.

With another 4 interest rate hikes priced in form the Bank of England and after the run of form we have seen the Pound could well be over bought and over-priced. Should the Bank of England slow, stall or pause the priced in plan of hikes for GBP we could well see rates struggle.

After all rates have struggled to get higher in what has been a very clear run for GBP. Furthermore, if you add in that during the same period the single currency has had a very rough time, been largely impacted by Ukraine and in regards to central bank action has seen no real positive action – the European Central Bank has not raised rates for 10 years.

This is where readers should take warning. With the market so heavily stacked in GBP’s favour positive movements will be an uphill one, and any negative movements will be magnified. A stall to the BoE’s programme or increase in speculation the ECB will begin to hike rates would see the market shift dramatically. With this in mind, and with rates currently with 2 cents off a 6-year high readers may want to act now before it is too late and it is Mayday for the Pound.

Across the Ocean the USD only seems only to be going from strength to strength, largely and sadly due to the Ukraine with it hitting 6-year highs against the single currency and 3 year highs against the Pound.

Should you have any upcoming requirements speak to your currency consultant at A Place in the Sun Currency today for some friendly guidance on how to remove risk and get the most out of your transfer.