Hawkish Bank Sees Pound Rise
9 February, 2018
Yesterday we saw the pound rise following the latest Bank of England policy meeting. At the end of the 2 day meeting the Bank left interest rates unchanged which was a unanimous decision and widely expected but their subsequent hawkish stance on future policy was certainly not expected and saw the pound rise against all its major pairings.
When the Bank met and raised rates last year, they set back the then current interest rate expectation for future rises into 2019, which at the time saw the pound drop in value, despite the fact the interest rates had just been raised. This time, they hinted strongly that interest rates may well be going up sooner rather than later, with markets pricing in a rate rise here as soon as May this year. Not only have they priced in a rise for then, they’ve priced in a larger than expected rate increase, meaning we could see a 50 basis point rise, rather than a more gradual 25 basis point rise. The result of these comments gave the pound a boost of over 1 percent against the euro and the US dollar, pushing the rates against the single currency back up to some of the best we’ve seen since before the General Election last year.
The reason for this more hawkish stance is inflation, which is still a major pressure on the economy and its felt the Bank are no longer prepared to let it mill around the 3 percent level we are currently at, when their target is 2 percent. It seems they are keen to do whatever is needed to bring that level down and ease the pressure on the economy ahead of the Brexit fallout. We will have to keep an eye on inflation levels next week when the reading is released which if the rate falls could bring those exchange rates back down again, so this could be the perfect opportunity to take advantage should you have a currency transfer to make in the coming weeks. We have already seen a dip as the trading day came to a close, undoubtedly from trader profit taking so make sure to not miss out and speak to one of the team today.
As an example, a €250,000 property purchase would have cost you £221,240 in the morning, £218,340 following the BoE press conference and £219,780 by close of trade. Significant differences showing timing is everything.
Today is less key for data but still with a few to take note of which could move the rates. This morning we have UK manufacturing and industrial production figures, plus trade balance followed by the NIESR GDP estimate at 1 pm. After lunch it’s across to Canada for employment data, so anyone looking to send money to Canada should stay in touch with their CI broker for an update early afternoon.
Happy Friday Readers!
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