What a week for sterling

By Luke Dyson

What a week for sterling, we have seen a massive amount of volatility for GBP/EUR following the Bank of England interest rate announcements. With sterling-euro then breaking out above and below its multiple month rangebound market yesterday. Since the beginning of 2022 we have seen very limited movement for sterling across the board. however sterling has maintained its strength despite many ongoing factors in the background that could really throw some negativity into the mix depending on specific outcomes.

It was announced yesterday (Thursday 3rd Feb 2022) that the Bank of England will raise interest rates 0.25% in an attempt to combat rapidly growing inflation in the UK. With interest rates now set at 0.5% the market shot up hitting new post pandemic highs, however these highs were very short lived following an announcement from bank Governor Andrew Bailey. He stated it would be a massive mistake to believe interest rate hikes are on an inevitable long march up as rates are not increasing due to the economy roaring away.

Following this we saw the market begin to tank as the euro began to gain traction against sterling and dollar. This was following the ECB rate decision to hold interest rates at 0% still. Following an announcement from ECB President Christine Lagarde saying “Eurozone inflation is highly uncertain and risks have now shifted to the upside” with it now deemed the euro zones increasing inflation will begin to decline and stabilize over the course of this year with no help from interest rate hikes further down the line.

Volatility has been high the last couple of days following interest rate decisions and ECB meetings. Its not over just yet either, there remains a massive amount of uncertainty to what will happen regarding the letters of no confidence against the Prime Minister. With four of his senior aides resigning yesterday now bringing his letters of no confidence to 17. Although is way off the 54 required it is beginning to put pressure and raise tensions levels to what’s going to happen shortly. This could have a devastating impact on the strength of sterling if Johnson was to resign or be forced out.

If you are a looking to buy euros in the near future do consider taking advantage of the current rates. Although the market has dropped slightly from the post pandemic highs it’s still an excellent buying opportunity given where the market has been previously. Is it worth the risk to see the outcome of the current Boris Johnson situation for a potentially small upside gain with a chance of a larger downside potential?

You can get in touch with A Place in the Sun Currency today to get a strategy in place to limit your currency exposure ahead of any up and coming currency purchases.

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