The pound strengthened against the euro to its highest level in over 4 weeks yesterday, however quickly retracted below the 1.12 interbank rate again throughout the course of the afternoon.

Currency Pair% Change (Month)Difference on £200,000
GBPAUD3.0%AUD $10,730

The spike in sterling exchange rates could be attributed to suggestions from the European Central Bank that its next move could be to either cut interest rates, or re-introduce its bond purchasing programme in an effort to stimulate the European economy, which in turn weakened the euro. However, as the afternoon progressed, some further disappointing UK economic data pushed the value of the pound lower again.

UK Retail Sales figures were released which showed yet another fall in July, contracting for the third month in a row, highlighting the longest decline since 2011. Recent data also suggests that the slowdown could also continue throughout the third quarter, as Brexit continues to concern consumers forcing them to curb their spending.

Boris Johnson gave his first speech to Parliament as the new UK Prime Minister yesterday afternoon, stating ‘Our mission is to deliver Brexit on the 31st of October for the purpose of uniting and re-energising our great United Kingdom and making this country the greatest place on earth’. Boris Johnson’s continuous hard stance on Brexit could continue to keep the pound low against its currency counterparts over the coming months. According to reports from Reuters yesterday, the possibility of GBP/USD interbank exchange rates falling to 1.15 or lower is increasing, which would be the lowest levels since October 2016. Reuters have also implied that there are plenty of opportunities for the pound to fall lower if Brexit negotiations do not go well between Johnson and the EU or Parliament, if a general election is called, or if the Bank of England are forced to cut Interest Rates in the light of a weakening economy.

The reason for the increase in Sterling as a result of increasing inflation levels is it’s put pressure on the Bank of England

Will the Bank of England keep Interest Rates on hold?

The Bank of England (BoE) will next meet on Thursday to announce its latest Interest Rate decision and release its Quarterly Inflation Report. It is widely expected that the bank will keep Interest rates on hold at 0.75%, following from comments earlier this week by Chief Economist Andy Haldane that the BoE are cautious of cutting rates unless a sharp economic downturn is noted. However, any signals to future policy changes, or if the Bank of England surprises the market by cutting rates, this could cause further volatility for sterling exchange rates.

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