Following a very positive day for Sterling, after the Bank of England's comments regarding future interest rate hikes, James Lovick looks at what's ahead for the Pound. The table below shows the movements for a number of GBP pairings yesterday:
|Currency Pair||% Change||Difference on £200,000|
The Pound has rocketed against all of the major currencies following the Bank of England meeting yesterday. The central bank held interest rates at 0.5% as widely expected although surprisingly hawkish comments in the minutes led the Pound to jump over 1% against the Euro and a cent against the US Dollar.
The Monetary Policy Committee (MPC) has raised its economic growth forecasts citing a stronger global outlook and has warned that interest rates may now need to rise sooner than initially expected which has caused a rally in the Pound.
Brexit progress in the next few months will almost certainly have a bearing on things to come but for the moment there has been a substantial jump higher in the price of sterling which is currently presenting clients with another good opportunity to buy Euros and dollars.
The markets are now anticipating the next interest rate increase could come as soon as May. Andrew Sentance who used to sit on the MPC is predicting at least one interest rate hike this year with the possibility of two or three.
It is worth highlighting though that the Bank of England have not committed to a rate rise yet and have left a couple of big “ifs” in the minutes being Brexit and strong economic growth. As such the rally may prove short-lived.
The battle for staying in the EU is by no means over. It has been reported that George Soros who was dubbed the “man who broke the Bank of England” on Black Wednesday in September 1992 has donated £400,000 to the Best for Britain campaign. It is understood that there will soon be a major campaign to commence later this month to try and keep Britain in the EU with a view to securing a second referendum on EU membership.
It has been reported that a strategic advertising campaign will put pressure on the government which could even see this government toppled. Another general election or referendum would likely see major volatility for the Pound and in my view considerable sterling weakness. Similarly a change of government or Prime Minister could be equally as damaging for the Pound if not worse.
Considering the major impact Brexit continues to have on the price of sterling then there could be an incredibly volatile period ahead in these coming weeks and I would expect a lot more mileage in this story. Be sure to be in contact with your account manager to avoid any potential disappointment if rates begin to move in the wrong direction.
This morning sees the release of UK Manufacturing and Industrial Production (PMI) figures which could make for an interesting end to the week. Both manufacturing and construction PMI data this week arrived weaker than expected helping to take the recent shine of the Pound.
For more information on how data releases could affect your currency exchange, call our trading floor on 01494 725 353 or email me here.
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