Daily Archives: March 10, 2011
Interest rates hike the key for sterling
It has been a very volatile start to 2011 for sterling exchange rates. We have seen some excellent gains for the pound spiking at over one year highs against the US (1.6343) & New Zealand Dollar (2.2246)but on the downside we hit lows against the Euro of 1.1580 while holding fairly steady against the Israeli Shekel hovering around the 5.7 level
One of the main drivers for the pound since the turn of the year has been the much publicised high inflation. We have all been feeling the pinch of rising oil prices which has an effect on you and me through rising petrol costs to energy and food supplies. Add in the VAT hike and inflation is now well above the 2% target level t set by the Chancellor.
High Inflation normally strengthens a countries currency as it leads to speculation that interest rates will be raised which in turns attracts investors. Since the turn of 2011 there has been more and more speculation that interest rates will be raised in the UK. The first full week of every month the Bank of England meet and set the interest rate for the country. The last meeting showed that three members of the MPC now voted for a rate hike. There are nine members in total and I believe it is a matter of time before we see a majority vote for a base rate hike. This month’s rate decision was kept on hold at 0.5% but we could see the rates rise as soon as May or June. This will give the pound the much needed boost it requires.
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Interest rate decision in the U.K today – Key for Sterling Will we see weakness or strength? My forecast
Today brings the BOE interest rate decision at 12:00pm and could be extremely important news for Sterling going forward, especially if we do see a surprise rate hike (which personally I think there is around a 25% chance of seeing)
The more likely outcome is that rates remain on hold once again and you may see minimal Sterlnig weakness following this due to a minority of investors taking a punt in advance that rates may go up, with the markets moving on rumour as well as fact this could well lead to Sterling weakness.
An interest rate decision is in general seen as positive for the currency concerned and a cut negative, however this is not always set in stone as a hike in the U.K could in the medium term cause major problems as many mortgage payments will rise and this could lead to further economic troubles further down the line.
In short, I think Sterling will actually have a reasonably positive day as early morning data was slightly better than expected, and even though it may cause probles later on, a hike in rate will cause some short term rapid Sterling strength.
Feel free to pop back on here later for the latest.
If you are buying or selling a property abroad, have business transactions to carry out or need to get money overseas for any other reason and want the best exchange rates, just fill in the form on the right hand side and one of the experienced traders that write on this blog will be in touch shortly.
