By Robin Haynes
Sterling fell towards the end of last week, as markets digested the Bank of England’s decision to keep interest rates on hold on Thursday, along with inflation and retail sales figures.
The Monetary Policy Committee voted 8-1 to keep rates on hold, which is seen as a signal that interest rates could soon be heading down. (Last time round, one of the members even voted for a rate increase.) Coupled with inflation falling to its lowest for two years, there may be scope for the Bank to start to bring interest rates down through the rest of 2024.
While this could be good news for shoppers and mortgage holders, it doesn’t help the Pound. Lower interest rates mean a lower return for investors in sterling assets, which often reduces the value of a currency as demand falls. This is likely why the Pound fell across Thursday and Friday; if the UK cuts interest rates before the European Central Bank and Federal Reserve, it’s something that could be a drain on exchange rates through the year for those of you looking to exchange from sterling to Euros or US Dollars.
On a more positive note, UK retail sales on Friday were better than expected. Clothing sales increased, but food and fuel sales dropped, leaving shop sales overall as flat in February – but better than an contraction in high street activity which had been expected.
Data this week
As we head towards Easter with a short working week, the only UK data of note is Thursday’s GDP figure. Recent readings have kept the UK out of a technical recession, so any sign that the economy might be shrinking would very likely cause problems for the Pound; conversely a good growth figure, along with falling inflation and slowly-improving retail sales, could paint a better picture for sterling in the short term.
As always with economic figures failing to provide too many green shoots of spring it is a tricky time to be exchanging currency. A Place in the Sun Currency are here to help guide you through and make sure you don’t leave yourself exposed to potential shifts in exchange rates throughout your transactions – give us a call for a chat around your own requirements.