By Matthew Vassallo
The the Bank of England (BoE) met yesterday for their latest policy meeting, and as anticipated raised the UK’s base interest rate by 0.25%.
Despite the expected hike the Pound came under immediate pressure, with a sharp sell-off causing its value to drop against most major currencies.
GBP/EUR rates fell by almost a cent and despite a modest bounce back during afternoon trading, it has thus far failed to recover back to the levels we have been accustomed too over recent months. The lofty heights of 1.20 now seem to be a thing of the past for the time being, although with concerns regarding the relative health of the Eurozone economy still ride, tying to predict investors next move is challenging to say the least.
Whilst the Pound also saw its value decrease against the USD, the trend on Cable was already a negative one. The USD has found increasing support in line with the increased tensions in the Eastern bloc, and then following military action by Russia against its democratic neighbour, this trend only intensified. I expect the greenback to remain well supported in the short-term as investors scramble to buy up USD positions, considered a safer haven than some of the more exotic, commodity-based currencies in times of global economic uncertainty. Whilst this trend will not be indefinite, it is likely that only a toned-down rhetoric by President Putin and/or an acceptance by Ukraine that they will have to conform to the demands of a dictator (which include giving up large swathes of Ukrainian territory, a guarantee not to join NATO and debilitating demilitarisation amongst others) will have a significant impact in terms of increasing investors risk appetite.
Looking ahead and next week brings with it a host of key economic data releases for the UK and the Eurozone:
- UK Retail Sales
- UK Inflation figures
- UK Markit Manufacturing PMI
- UK Markit Services PMI
- Eurozone Markit Manufacturing PMI
- Eurozone Markit Services PMI