This Sterling update examines factors that could affect GBP exchange rates this week, with the key event being the Bank of England’s interest rate decision tomorrow. The table below shows the market movements for a number of currency pairings in the last 30 days:

Currency Pair% ChangeDifference on £200,000
GBPEUR1.8%€4,150
GBPUSD2.1%$5,450
GBPAUD2.6%AUD $8,840

EU Repeal Bill

The UK’s government has successfully won its first bid to remove EU law from the UK in time for Brexit. The vote came through on early Tuesday morning which helped to push the Pound just above 1.10 vs the Euro and 1.32 against the US Dollar.

EU Repeal Bill voteThe EU Withdrawal Bill effectively means that the UK overturns the 1972 European Communities Act which led the UK into the European Economic Community. The deal involves converting all of the current EU laws into UK law in order to avoid any uncertainty once Brexit has been fully carried out.

The good news as far as Sterling is concerned is that we are one step closer towards a bit of certainty and this is in part why we have seen the Pound strengthen against all major currencies.

With every Conservative voting for the Bill it shows a ‘strong and stable government’ which is what Theresa May had hoped for many months ago.

Inflation and the impact on Sterling exchange rates

The Pound is currently at its highest level to buy Euros in a month providing Euro buyers with a good window of opportunity. The Consumer Price Index showed an increase from 2.6% to 2.9% year on year for August and with the Bank of England due to meet on Thursday to discuss their latest monetary policy could we see a difference in the voting pattern from the previous meeting?

Rumours have been circulating that the Bank of England will not be looking at raising interest rates until 2019 but with inflation rising as high as it has yesterday this could influence Thursday’s decision making.

The previous month was 6-2 in favour of keeping rates on hold and tomorrow we have a new member Dave Ramsden coming in to add to the votes but in my opinion I don’t think he’ll make any changes as it is very rare when a new member voices any change at their first meeting.

UK Unemployment & Average Earnings

With inflation climbing to its highest level in over five years this has in part been caused by the collapse of Sterling over the last 12 months since the Brexit vote back in June 2016. With today’s UK Unemployment data as well as Average Earnings this is likely to cause further volatility for Sterling.

Although unemployment is close to its lowest level in over 30 years the real issue for the British economy is the disparity between inflation and average earnings. This has seen the cost of living rising and effectively reducing the ability of consumers to keep up their spending which is also a big driver for UK growth.

Therefore, this is another reason why I think UK interest rates will remain on hold for a long time to come so any expectation of Sterling rising following the decision is in my opinion unlikely to occur.

For more information on factors could affect your currency exchange this week, please call our trading floor on 01494 725 353 or email me directly at teh@currencies.co.uk.