With a huge week of data lined up, the Pound has started the week on the back foot as investors remain wary ahead of the Bank of England’s interest rate decision on Thursday. The Sterling report below looks into the likelihood of an interest rate hike and the potential impact of this on the Pound. The table below shows the range of exchange rates for a number of currencies during the past 30 days.
|Currency Pair||% Change||Difference on £200,000|
Having said that, Monday morning’s housing market data showed some positive signs and may have boosted the chances on an interest rate hike on Thursday, with the number of mortgages approved for June reaching a 5-month high and consumer confidence reaching a near two-year high.
The chances of a rate hike now on Thursday are looking quite high, with the Bank of England keen to limit the rate of inflation following a rise in oil and energy prices. With an interest rate rise looking likely this week many of our clients are asking how this could affect the value of the Pound.
I personally believe that if rates go up to 0.75% it will be the press conference from BoE governor Mark Carney that will have the greatest influence on Sterling rates. On paper you would expect the Pound to gain off the back of a rate hike, but I believe that Sterling will actually come under some pressure on Thursday as any change in rates will likely be followed by a cautious statement.
With a cloud of Brexit uncertainty still hanging over the UK at the moment the BoE are likely to warn of the implications this could have on the economy going forward and may therefore be fairly dovish in terms of future monetary policy moves.
Carney may also make a nod towards fears over slowing wage growth, so will be mindful not to want to raise rates too quickly to avoid damaging households, especially within the current political landscape.
With this in mind I expect to see a volatile few days for GBP and most likely resulting in a drop against the Euro and Dollar. If you have an upcoming Sterling requirement it may be sensible to contact your account manager here in good time before Thursday to make sure that you are aware of all your options and how to limit your exposure to any adverse market movements.
To add to the uncertainty over what Brexit will look like come the March deadline, a spokesperson for Theresa May claimed yesterday that Britain will set out a number of ‘sensible precautions’ in the event of a no deal Brexit scenario. Parliament are currently enjoying their summer recess, but with an October deadline looming to have a deal in place ahead of the final deadline in March, the chances of a no deal are seemingly becoming more and more likely. If that is the case then there could be serious implications for Sterling sellers.
British Foreign Secretary Jeremy Hunt is set to travel to Austria and France this week with the aim of gaining support for Theresa May’s recent Brexit proposals and to warn of the costs that a no deal could have to the EU and Britain. Keep an eye on the fall out form his meetings as this could have an impact on the Pound’s value.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.
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