Since the Brexit vote back in June Bank of England governor Mark Carney has been very outspoken about the fragile state of the UK economy.
With the central bank having cut interest rates shortly after the vote to leave the European Union Carney has also mentioned on a number of occasions the risks to the UK economy caused by the uncertainty.
Over the weekend according to some news reports Carney was considering leaving in 2018 but since then Prime Minister Theresa May has remained supportive and he is now likely to be staying beyond the end of his initial term which is due to end in 2018 and extend his tenure until 2019. Some pro-Brexit campaigners have been calling for him to resign but when he speaks on Thursday he is likely to clarify his position.
With UK GDP for the third quarter coming out better than expected some people think that Carney was too much of a ‘gloom and doom merchant’ whilst others have said his quick action helped to stabilise the economy. When Carney announces officially that he’ll stay I think this could see a brief period of strength for the Pound against all major currencies as certainty is what a currency craves.
Sterling Euro exchange rates are close to 5 year lows and GBP/USD rates are also close to their lowest level in 31 years with the Pound struggling since the Brexit and the announcement that Article 50 will be triggered by March 2017.
With the Bank of England having cut interest rates earlier this year we could see another rate cut when they meet on Thursday. My reasoning is that both Mark Carney and deputy governor Ben Broadbent have both shown little concern in the falling value of Sterling so me this signals that the central bank could cut interest rates.
There is an argument that owing to increasing inflation the BoE are less likely to cut rates but I think they are still concerned as to the uncertain period that we are in and this could result in a rate cut this week. If this does happen I expect the Pound to fall further against all major currencies. Therefore, if you need to sell Sterling to buy another currency then it may be worth looking at organising this prior to the event.
The UK Quarterly Inflation Report is also released at the same time as the Bank of England’s interest rate decision and this is likely to be another key reason as to how the BoE may react on Thursday. The target rate is for 2% and with inflation rising to 1% recently any suggestions that inflation could rise could see volatility for Sterling exchange rates.
Thursdays interest rate decision from the BoE could spook markets in the build up to the event. Clients looking to buy foreign currency in the days ahead may benefit from speaking to our team on 01494 725 353.
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