The Pound has risen sharply this week to some of the best levels since the end of January. This followed reports that the UK and EU have agreed terms for a transition deal, helping to avoid a cliff-edge Brexit next March. The table here shows the impact of this, displaying the market movements for a number of currency pairings during the last 30 days:
|Currency Pair||% Change||Difference on £200,000|
Although a number of the fisheries in the UK are unhappy with the deal, which means that the UK will lose control over its fishing territories, this deal should give some more confidence to businesses and individuals and we have seen the Pound benefit as a result. The next key event to look out for will be the EU Summit on Thursday and Friday, where we should find out some more details from the deal and potentially make more progress on Brexit.
Thursday is certainly the key day to look out for this week as far as the Pound is concerned, with the upcoming Bank of England interest rate decision. There are also a number of economic events in the meantime that look set to impact on the Pound’s value and which could drop some hints in to how the Monetary Policy Committee have voted on interest rate policy. Yesterday saw the release of inflation data for February, which highlighted a rise in inflation of 2.7%, the slowest growth since July last year. The main reasons behind this slowdown in the cost of living has been attributed to a drop in petrol prices and also the initial impact of the 2016 Brexit vote, where the Pound fell dramatically, starting to wear off.
I think it is still likely that the Bank of England will be looking to raise rates in the not too distant future.
Usually you would expect to see the Pound weaken when inflation falls, as it essentially takes the pressure off the BoE to raise interest rates, but with inflation way above the Bank’s target of 2% and still at double that of Germany and France, I think it is still likely that the Bank will be looking to raise rates in the not too distant future.
Investors will also keenly watch average earning and unemployment figures this morning at 09.30. The Bank of England closely watches these two data sets, as well as the price of goods and services, when it comes to raising rates. They will want to see a rise in wages and a steady rate of employment to have the confidence that the economy will be able to cope with an increase in mortgage costs and loan repayments.
The consensus is that we will see a rise in earnings over the past three months and if that is the case then we could see a spike for the Pound as investors start to price in the chance of an interest rate hike sooner rather than later.
This leads on to the main event tomorrow afternoon at midday when the BoE will release their decision. I personally feel that we are unlikely to see any change in policy this month, which is likely to limit any major gains for the Pound, but it will be very interesting to hear their commentary afterwards, which often drops hints towards future policy decisions. In my opinion, we are likely to see a rate hike in May, which is what many investors are currently pricing in to the value of the Pound, so any hints towards this could bolster the Pound’s recent strength and offer an excellent spike to take advantage of for any clients selling Sterling.
The downside risk is that if they go against predictions and don’t hint to any policy change in May then this could see the Pound’s gains in recent days reversed. As our regular readers will be aware, any gains for the Pound have been relatively short-lived in recent months, so if we do see any opportunities to take advantage of then it is important to be prepared and have a plan in place to help squeeze as much out of your currency transfer as possible.
For more information on how future data releases could affect your currency requirement, call our expereinced team of currency brokers on 01494 725 353. If you have a specific rate in mind you can set an exchange rate alert here.
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