UK Growth fuels rate hike chances

26 October, 2017

Rob Bastin

UK Growth boosts Sterling

Wednesday’s trading saw a welcome boost for the Pound following slightly better than expected UK growth figures for Q3. The market had been anticipating a Q3 growth figure of 0.3% (no change) and an annual figure of 1.4%, dropping slightly from 1.5% previously. Actual figures, however, saw Q3 growth revised up to 0.4% and no change on the annual figure holding at 1.5%.

With the Bank of England meeting next week, traders were quick to recover the losses seen on Tuesday for Sterling as these figures further increase the chances of a rate hike next Thursday. It is, however, worth reminding that at these levels a rate hike is largely already priced in, leaving little room for further gains on an expected outcome, but allowing for plenty of downside risk if the BoE does not deliver on expectations.

Bank of Canada Rate Decision

Yesterday afternoon also saw the latest rate decision from the BoC. This, however, turned out to be a bit of a non-event with rates held at the current 1% and with no key changes in the accompanying statement. Looney exchange rates, therefore, held very stable but with GBP/CAD pushing higher due to the stronger pound.

ECB Rate Decision

UK Growth
UK Growth

Today is all about the next big announcement from the European Central Bank, who meet at 12:45 pm to announce their latest interest rate decision. This meeting has the potential for big movements in the Euro with much-anticipated policy changes expected to be delivered by Mario Draghi. Whilst no change to the base or deposit rate is expected, the markets do expect a reduction in the current asset purchase programme, potentially down to €40bn per month as of January 2018, down for the current €60bn.

This would be a positive step for the ECB and would be viewed as a sign that the programme is working, and the Euro-zone recovery is on track. This would therefore likely favour the Euro which could see GBP/EUR rates drop again after a good day yesterday.