Pound surges after Bank of England hint at interest rate hike

Last week was a busy week which saw the Pound surge following an increase in UK inflation and as a result the Bank of England hint at interest rate hike in the UK.

Last Tuesday saw UK inflation come in at 2.9% which was up from a predicated 2.8%. This then followed by the Bank of England and Monetary Policy committee meetings on Thursday. And whilst there was no immediate increase to the UK interest rate, held at 0.25%, markets are now pricing in an 80% probability of a hike in February 2018. This caused the Pound to rally significantly as prior it was thought a hike would not take place until April/May at the earliest. Sterling’s gains were further boosted on Friday as MPC member Gertjan Vlieghe (who is known to be dovish) signalled that he may be preparing to vote for a hike. In a statement, he said “The evolution of the data is increasingly suggesting we are approaching a moment where the bank rate may have to rise”. Because of these various events, it was a good week for the Pound gaining around 4% against both the Euro and Dollar.

The Week Ahead

This week is a busy week for data albeit a quiet one for UK ecostat releases, and often this can spell bad news for rates if strong figures are posted elsewhere. Given the rise we have seen, particularly against the Euro, we may now see profit taking, the Euro being sold off and rates drop off slightly again. Often after we have seen a fast increase in rates it is not unusual to see a contraction follow. And with little data from the UK the Pound won’t offer much of a defence to the recently strong Single currency. The German election is also fast approaching, so those of you who have been brave enough to hold out for improvements to the rate, may like to take advantage of them currently- with Euro rates the best they have been in 2 months and USD rates now over a year.

Monday

10.00     EUR        Inflation data

15.00     USD       Housing Market index data

Tuesday

02.30     AUD       RBA meeting minutes

10.00     EUR        ZEW survey

13.30     USD        Housing data

Wednesday

07.00     EUR        German PPI

08.00     EUR        Non-monetary policy ECB meeting

09.30     GBP       Retail Sales

19.00     USD       Fed interest rate decision & FOMC minutes and statement

Thursday

03.00     JPY         BOJ interest rate decision and statement

07.30     JPY         BOJ press conference

09.00     EUR       Economic Bulletin

13.30     USD       Unemployment data

Friday

08.30     EUR       Markit services and manufacturing data

14.45     USD       Markit services and manufacturing data

The Bank of Interest hint at interest rate hike has certainly given the Pound some much needed improvement. Contact Currency Index for the latest news and exchange rates.