Pound gains following hint at interest rate hike

Yesterday was a good day for the pound having recently suffered losses because of the UK election result and uncertainty over Brexit. In the morning GBP/EUR remained stagnant as UK retail sales all came in well under expectation, however this was balanced by poor Euro trade balance figures released half an hour later. The USD did make minor gains against the Pound and against the Euro stole half a cent. Gains against the Pound were very short-lived though as at 11am we saw Bank of England data released, and whilst interest rates have remained at 0.25% we saw a shift in the MPC vote to 3/5 for a hike from a previous 1/7.

This is largely because of rising inflation levels which are currently sat at around 2.9% and well above the previous target set by the BoE of 2%. Consequently, the hint of a potential interest rate hike strengthened the Pound as the allure of higher interest rates attracts increased foreign investment. By the close of business, the Pound had gained almost a cent against the Greenback and the single currency, recovering from 9 month lows against the latter.

Today is a busy day awash with many low level ecostats but dominated by Eurozone inflation data at 10am, and a raft of US housing data at 1.30pm. With the Pound still in limbo as we await news on our government and how Brexit will be navigated, for many yesterday’s gains will be welcomed. However, whilst uncertainty remains so too does the possibility of losses for the Pound., so don’t be surprised if this surge might be short-lived. With the US having raised their interest rate by 0.25% earlier this week, Europe have hinted at hiking their own interest rate recently with the probability of such increasing week by week, it seems the race might now be on for who goes first. In what is a highly sentiment driven market currently, but with potential high impact interest rate changes on the horizon we are likely to be in for a bumpy ride in the coming months.

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