This Pound Sterling outlook looks at whether the rumoured UK interest rate hike is justified given the current situation for the UK. The table below shows the market movements for a number of currency pairings and the difference in value between the high and the low yesterday:
|Currency Pair||% Change||Difference on £200,000|
The Pound has strengthened against the majority of major currencies recently. The biggest catalyst has been the talk of a potential rate hike from the Bank of England (BoE).
Mark Carney the governor of the BoE announced there may be call for a rate rise by the end of the year, possibly as soon as November.
Personally, I take the words of central bankers with a pinch of salt, but this was not the case with investors who moved to the Pound in hope of profit. It is now deemed there is a 50% chance of a rate hike by November and a rate hike has been factored in for before February next year.
The justification for the potential rise in the interest rate however is somewhat misleading. Inflation has been given as a positive for the UK economy, currently sitting at 2.9%, however inflation is only healthy for an economy if average wage growth is growing at a similar rate, it is not, average wage growth was 2.1%.
Employment levels have also been cited as reason behind a rate hike. With many believing the hype surrounding the best figures since the 1970s, let us not forget however that a significant amount of those employed now are on zero hour contacts.
Carney is due to speak again today but, I would be surprised to see any change in stance from yesterday’s speech. The indication for a rate hike from Carney could simply just be jawboning, a method commonly used by central bankers to talk up the value of a currency rather than an actual change to monetary policy. The Monetary Policy Committee (MPC) are the ones who actually vote on a change in rates and they voted 7-2 in favour of keeping rates on hold this month. Could there be such a change in stance by November?
Be wary of hoping for a continued rally for Sterling. I am of the opinion a rate hike is not a given, nor is it a solution to the UK’s woes. Clarity over Brexit is, and with the key issues such as citizens’ rights, the exit bill and trade agreements yet to be addressed I would not have faith in large gains for the Pound.
This morning we will see the release of UK GDP data. It is predicted to come in at 0.3%, the same as the previous quarter. I think we may see a fall which has the potential to weaken Sterling.
Thank you for reading today’s Pound Sterling report, if you have any questions about anything in this report please feel free to get in touch. You can email directly me at firstname.lastname@example.org.
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