Sterling’s Glass Ceiling

By Matthew Vassallo

It’s been a quiet week for Sterling, with the Pound unable to surpass or even touch upon the highs of last week against both the Euro and US Dollar.

Whilst investors who have a weighted interest in GBP’s prosperity will rest easier, as the Pound navigates seemingly calmer waters than at the turn of the year. The key question now is whether we’ve seen Sterling hit something of a glass ceiling against many of the other major currencies following a steady upturn, which was abruptly halted following last Thursdays BoE policy meeting.

Whilst BoE members remained true to recent form by hiking the UK’s base interest rate, the markets had widely factored in their decision to raise rates by just a modest 0.25%. The central bank now faces the unenviable task of trying to marry up falling inflation levels, a potential crash in the housing market – which is tied into the sharp increase in mortgage rates – and a tougher stance by many lenders in terms of their repayment conditions.

Add to this the ongoing cost of living crisis, which continues to grip households across the UK. One that has thus far shown little signs of reversing, and it becomes difficult to paint an overly optimistic picture to help support the notion that an increase in Sterling’s value is imminent – at least in the short-term.

I think its likely that we’ve now moved sufficiently away from the darker days of 2022, when the Pound fell to record lows against the US Dollar, whilst not fairing much better against the Euro. However, any significant upturn from its current standing will likely have to be tied in to, at the very least, a more bullish stance by BoE members and its governor Andrew Bailey. All of whom have remained eerily quiet in their assessment of last week’s rate hike decision and subsequent forecast for the UK economy over the coming weeks and beyond.

Whether that is just coincidental, or a sign that at best the BoE members remain opposed as to the correct economic strategy to move the UK economy forward, or at worst have no strategy at all, only time will tell.