Sterling exchange rates soar after Bank of England shock markets

Yesterday Sterling exchange rates enjoyed their best performance since back in April when GBP/EUR rates last hit 1.20. After a slippery morning with rates dropping around half a cent, Sterling received a much needed boost following the Bank of England’s latest interest decision. The markets had been expecting the BoE to hold all current policies with a base rate of 0.25%, the same size QE programme, and the same vote split on a rate change of 7-2 against. All of these factors came in exactly as predicted and would have likely seen the pound drop from its recent inflation rally if it wasn’t for one key phrase in the accompanying statement. In this statement the BoE advised the markets that the MPC discussed largely agreed that policy tightening may be warranted in the coming months due to more stable growth and rising inflation. This means we could see either a reduction in the current QE size or term, or alternatively a small rate hike in attempt to curb inflation that is set to exceed 3% in the coming months. The markets are now pricing in and speculating on rate hike in the UK as early as February 2018, something which has potential to bring the Pound some much needed stability.

GBP/EUR exchange rates got an extra boost an hour later as the US announced their latest inflation figures with another surprise result to the upside. US inflation now sits at 1.9% on the year, up from 1.7% last month. The strength therefore seen in the USD after this announcement meant that the Euro weakened against both the Dollar and the Pound, with GBP/EUR and some other sterling exchange rates peaking yesterday at the best rates since 20^th July. It is however important to note that the GBP/EUR rally halted at its furthest point whilst still keep the downward trend structurally intact, meaning we are unlikely to see much better buying levels in the short term. A period of consolidation at these levels and lower should now be expected for the coming weeks, with 1.10 back in play as a key lower support level. If you have a Euro requirement in the coming weeks, or even next few months, now could be an excellent opportunity to lock a rate that banks you 5% more Euro that you have got just 2 weeks ago. This would save you nearly £9000 on a €200,000 property and these rates can be fixed for a future date with just a 10% deposit.

The day ahead sees a quarterly bulletin form the Bank of England at 12pm where we may get some greater insight from march Carney on today’s events. This will be followed at 1.;30pm by US Retail Sales figures with analysts expected a sharp drop that could easily see the USD weaken and Euro strengthen again; sterling exchange rates remain in the balance.