Pound stays strong after Bank of England decision

By Luke Dyson

We have seen a significant amount of volatility for sterling over the last few days, with exceptionally strong gains being made against most GBP major pairs.

This was mainly driven by an aggressive rate hike by the Bank of England, this was hiked 0.5% ( 50 basis points) to a new post-2008 high of a 5% base rate.

Following on from this, it boosted sterling for most pairs and has given the pound a further buoyancy device to maintain its strength for the weeks ahead. However this result was not the same for the Euro or dollar. Although many financial market analysts believe the Bank of England has been too slow to react previously to the rising inflation levels, this hike is a saviour for sterling moving forward.

It is believed another 50 basis point hike will be announced mid August, now with the base rate over 5% this potentially could be a negative thing for sterling as the cost of borrowing and debt repayments now are becoming very unaffordable for many and the government.

For Sterling-Euro we have seen the market drop slightly from its most recent high, the highest point since August last year. Although sterling has been the best performing currency for the past month, in the last week it has been a serious under performer due to the disastrous inflation figures and a larger than expected rate hike. With the core inflation rate on the edge of leading total inflation higher for a second peak it is expected the Bank of England will now look to raise rates aggressively till year end, with predictions of 6.25% being the peak base rate.

This could drastically impact the strength of sterling for the worst if this was to be the case.

If you have an up and coming currency requirement please get in touch with your currency consultant and consider making the most of sterling’s current strength as this could be very short lived with further interest rate hikes and if inflation begins to climb further.