Pound Sterling exchange rates could be in for a bumpy ride this week with an interest rate cut expected from the Bank of England on Thursday.
The Pound looks set to come under renewed pressure this week with financial markets once again predicting an interest rate cut by the Bank of England. Analysts were predicting a cut last month but were disappointed. The Bank is unlikely to disappoint this time despite GDP (Gross Domestic Growth) for Q2 2016 showing an increase. The more recent news post Brexit is not so positive. The latest Confederation British Industry survey surveying more than 800 business leaders showed business outlook at its gloomiest since 2012.
In conjunction with the latest Consumer Confidence survey from Gfk last week showing consumer confidence at its lowest since 1990 the more immediate news is rather worrying and heightens the case for a cut.
An interest rate cut weakens a currency by making that currency less attractive to hold. QE (Quantitative Easing) weakens a currency by increasing the money supply through increased buying and selling of government bonds. With interest rates at all-time lows and QE already having been used there is only so much the BoE can do to stimulate the economy. However these measures should not be underestimated for it is was such measures that back in 2008-9 caused Sterling to hit near parity with the Euro. Whilst I would not expect rates to go that low, depending on what options are considered Sterling could be in for a very tough few weeks.
The Pound and the UK economy only really recovered in 2013/14 after the Financial Crisis of 2008-9. The trouble is Brexit is still so fresh and no one can say exactly what lies ahead. With the UK’s largest trading partner, the Eurozone, reporting lower growth on Friday it seems that the path ahead for the UK is still fraught with uncertainty and it will take weeks, maybe months before we can make an intelligent assessment of what is happening. For the time being the economy is growing, unemployment is low and we have a new Prime Minister helping provide certainty in a period of inherent uncertainty.
Economic plans by the Bank of England will be key to shaping the next steps for the pound and whilst clients should definitely be planning for further weakness for now the worst case scenarios seem less likely than before. A survey of Reuters economists polled recently suggested a majority are predicting a recession in the coming months. This is something any clients buying a foreign currency with the Pound should be preparing for.
For more news on interest rates and how a drop could affect your currency requirement call our trading floor on 01494 725 353 or email me directly at email@example.com.
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