By Matthew Boyle
Yesterday’s much anticipated news was that the Bank of England announced they would be raising UK interest rates by 0.25bp from 3.75% to now 4.00%. Usually an interest rate hike, as it is good for a foreign currency, would see rates spike, however the Pound saw little movement following the announcement, as markets had priced it in with a 97% probability. Whilst the interest hike was fully expected, what came as a surprise was the Monetary Policy Committee’s vote of 8-1 in favour of a hike, with the 1 outside vote – Catherine Mann – in fact pushing for a larger 50bp hike to 4.25%. The MPC’s position highlights a more Hawkish position by the Bank of England and has re-opened the door for further potential hikes in the coming months.
With the Pound currently close to 2-year highs against the Euro, rates saw little movement though, perhaps unsurprising given the markets pricing in, and following a near 4% uplift in GBP>EUR rates over the last 5 weeks alone. However, against the US Dollar, weakened from surprise results in the mid-term US elections, the Pound gained around 1/4 of a cent quickly following the announcement, albeit still a relatively minor shift in exchange rates.
Now that the door looks opened for further interest rate hikes in the UK, some might suggest that further gains are on the cards for the Pound. However, with GBP>EUR rates at significant highs and against a weak Euro, any return to strength by the single currency could easily see rates push back again. Similarly, with a currently weakening Dollar, if the greenback re-finds its feet, then we should expect the same.
Moreover, if yesterday’s interest rate hike works, we should see UK inflation figures start to fall which in turn would see the Pound slide across the board and buying rates drop.
Those with upcoming purchases may want to consider taking advantage of the currently attractive rates buying from GBP, by locking in an exchange rate using a forward contract.
Remaining data this week is focussed away from the UK with Industrial production data and retail sales data from the EU released this morning. This afternoon the focus shifts across the pond to the U.S with Non-farm payrolls and the Michigan consumer sentiment index release. Any surprises here could see rates for the Euro or Dollar shift.
Should you have an upcoming transfer to make speak to your currency consultant today for some friendly and professional guidance on how we can help make your money go further.
Friday
07.00 EUR Industrial Production data
09.30 EUR ECB Lane Speech
10.00 EUR Retails Sales
13.30 USD Wage Data and Non-Farm Payrolls
15.00 USD Michigan Consumer Sentiment Index