This Pound Sterling forecast looks at what is affecting GBP exchange rates. With exchange rates fluctuating every two seconds it can be important to understand what is driving the currencies in or out of your favour. To check current currency rates you can visit our live exchange rates page.

Sterling benefits from morbid BoE forecasts

It was made clear yesterday that the Referendum is still the prominent market mover for the Pound’s value on the exchange. Despite all nine members of the Bank of England’s Monetary Policy Committee voting against an interest rate hike, we still saw the Pound gain against most major currencies.

The likely culprit can be found in the press conference following the event, which produced the catchphrases which have dominated news headlines since yesterday afternoon; such as ‘recession’, ‘deflation’, ‘rate cuts’ and ‘rising unemployment’. It may seem counter-intuitive that such phrases in connection with the UK economy would cause the Pound to strengthen, but this was because Mark Carney, the Governor of the Bank of England, and his colleagues were asked hypothetical questions about a post-Brexit Britain, and these were their answers.

Their forecasts took a distinctively negative tone, so whilst the points were concerning, markets took this is positive argument for the UK remaining in the EU. Particularly given that the Bank of England is an independent body from government and is supposed to act without political bias; as much as leave campaigners may complain in this instance over the weekend. Any move towards a potential remain vote should translate into greater confidence in the Pound, similar to the effect of Obama’s visit last month.

Sterling holders to be wary from economic forecasts

Despite the positive gains for Sterling yesterday, these could arguably have been higher if it wasn’t for the distressing look into the next few months for the UK economy which Carney presented. Slowing growth, better inflation dependent on a strong tourist season, and an industrial sector set for continued recession. For the first time last month in more than three years the UK has been growing at a slower pace than the Eurozone, as first quarter growth came in at 0.4% and 0.6% respectively.

There was a reason why the Bank of England pointed out in its quarterly inflation report that only half of the 9% depreciation in the Pound is due to uncertainty surrounding the Brexit. The Pound was struggling with this underwhelming UK economy anchoring it down in January, before the Referendum become much of feature on exchange markets. As such, even if we do decide to stay, I must warn anyone holding Sterling not to expect a sudden turnaround in rates back to the glory days of 2015 which, despite being a short-time ago, seem a very long way away.

In the short-term today with little data out on the Pound exchange rates will largely be governed by events outside the UK, and this should continue until Tuesday when inflation data for the UK economy is released.

This is a serious market mover, and poor data just a few weeks ago caused the Australian economy to immediately jump into cutting interest rates to record lows. Last month the UK posted its first positive turnaround in inflation since the first half of 2015. This was attributed to an early Easter, and without high tourist season to drive up prices, a return to staving off deflation is the current consensus. Anyone considering buying currency can expect a difficult start to next week and may be wise to plan accordingly by speaking to their account manager and moving ahead of time.

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