Sterling takes a hit following BoE interest rate decision

By Grace Smyth

As we close out this trading week, exchange rates seem to have dampened much like the recent weather change we have been experiencing in the UK.

On Wednesday, UK inflation figures had dropped and etched a litter closer to the government’s target of 5% for the end of the year and 2% overall. Inflation moved from 6.8% to 6.7%, and although only a small change, the result is better than markets had expected, which was predicting to see a jump back up to 7.1%. The result could be the reason why the Bank of England made the decision they did.  Prior to UK inflation figures markets has placed an 80% probability for the bank to raise rates, but this dropped to 50% following inflation results. Yesterday, it was expected that the bank would raise the interest rate by 25 basis point to 5.5%, however the ultimate decision was to hold interest rates unchanged at 5.25% with a split vote of 5 – 4 and of those who voted to hold the rate as is included BoE governor Andrew Bailey. The decision to hold rates ended the longest period of tightening (2 years’ worth) in recent BoE history. Of course, inflation is nowhere near the government target of 2% so there is a long way to go before we see any improvements and before households will see any real change to their pockets and bank accounts. Chances of future rate hikes are still in the pipeline and the Bank will continue its approach to reflect their decision on data results as they come.

What does this all mean for the currency market?

Sterling lost ground in the run up to the Bank’s announcement and dipped further against the Euro and Dollar as the result was given.  Dropping to fresh 4 month lows against the Euro and 6 month lows against the US Dollar. Not the best news for those with sterling in hand looking to sell, but a relief for those who are looking to buy sterling back.

A return back to the levels we had been sitting at only 2 weeks ago could be hard to reach again, especially given this mornings UK retail sales figure which came expected came in under markets expectation posting 0.4% compared to expectations of 0.5% for August month on month figure and -1.4% from -3.1% year on year. Another indicator that consumer spending is tightening given the current climate.

There is little else out in the way of data releases to note today which could cause any big swings in the exchanges rates, so we are likely to see another day of markets digesting the latest central bank monetary policy changes ahead of next weeks trading. Should you have an upcoming currency requirement and concerned about rates, then do give us a call to discuss the various options we provide to help you secure your funds.