Sterling U-turn as Interest Rate Hike in the Balance
19 October, 2017
Sterling continued to lose ground against its major competitors yesterday losing nearly half a cent against the Euro and over half a cent on the US Dollar. Sterling had been experiencing a slight revival over the past few weeks as last month a couple of members of the Monetary policy committee from the Bank of England voted in favour for an interest rate hike. This provided the pound with some stability and rallied a couple of cents on the Euro over a couple days.
However, as of late those gains have diminished even though inflation in the UK has risen to 3% which had made way to the assumption that the governor of the BoE Mark Carney would give the green light for an interest rate hike, something that has not happened in the UK for over a decade.
However, the interest rate hike that was seemingly priced into the market which is now in the balance has now caused a U-turn in the GBP/EUR pairings falling over 2 cents in just over a fortnight. Mark Carney has been coy in recent interviews when asked about a potential rate hike which could be the reason for the pounds reverse along with the ongoing complicated Brexit negotiations.
Another key reason for that the interest rate may remain at historic lows could be that average earnings posted at 2.3%, 0.1% better than the 2.2% that was expected. Also posted yesterday was the unemployment rate in the UK which came in as the expected figure at 4.3%.
There will be another test for Sterling today as retail sales will be announced in the UK at 9.30am. Should the figure be a contraction from last month which market analyst are expecting to come in at -0.1% from the 1% of last month then the pound could be dealt a further blow.
Since the announcement of Brexit retail sales figures was one of the only UK data releases which posted positive figures, however in the past few months it has been on the decline, should today’s figure be negative this could be another sign that the pound is to remain in this downward trend.
This morning the pound has already dropped over half a cent on both the Euro and the dollar. To make sure you are not on the end of any nasty surprises with data continuously effecting the currency market stay in close contact with your account manager here at currency index.
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