Yesterday the Pound fell against most of the major currencies due to poor Manufacturing Purchasing Managers Index (PMI). PMI data gives a good insight to business conditions within the UK and the manufacturing sector makes up a large part of GDP. Previous figures were released at 55.5 and this month’s figure has dropped to 54.3. The Pound dropped 0.75% against the Euro, 1.2% against the Swiss Franc and 0.6% against the Australian Dollar.
Thursday at midday the Monetary Policy Committee made up of 9 voting members will vote to decide the interest rate for the next month. Since the Brexit vote the MPC have cut interest rates from 0.5% to 0.25% which led to a fall in Sterling exchange rates and many economists are predicting a future cut is on the horizon.
Here at Foreign Currency Direct plc the trading floor is divided in regards to how the interest rate decision will impact Sterling exchange rates. Below are three potential outcomes.
1) Gross Domestic Product numbers which give a good indication to the health of the economy exceeded expectation last week. This gives Governor of the Bank of England Mark Carney a reason to talk up Sterling when he addresses the public after the interest rate decision. Mr Carney has been heavily scrutinised in recent weeks due to his pre-Brexit views and there was speculation that he could resign in the near future. With UK Prime Minister Theresa May giving her full backing to Mr Carney, no doubt he will be asked about his future, if he states his full dedication is to improving the UK economy again and interest rate are kept on hold at 0.25% this could improve the value of Sterling.
2) If interest rates are cut from 0.25% to 0.05%, I expect the Pound will plummet in value. Furthermore if a cut doesn’t occur however some members of the MPC vote to cut rates, again the Pound could fall against the major currencies.
3) Interest rates are kept on hold and Mark Carney sits on the fence in regards to the UK economy and consequently the interest rate decision is a non-event.
If you are needing to purchase a foreign currency this week I would recommend you get in touch with your account manager to discuss the options available to you before Thursday decision. If you are waiting for your Sterling to become available and you wish to secure your exchange rate now (excellent for budgeting), with a small deposit we can do this for you.
For clients holding Sterling this weeks Bank of England interest rate decision could cause further volatility for the Pound - get in touch if you would like to discuss a transfer at email@example.com.
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