Sterling’s short-term valuation is likely to be determined by tomorrow’s Bank of England (BoE) interest rate decision and subsequent monetary policy statement. The majority of investors and analysts alike feel that a rate cut and/or an increase in monetary policy is likely, in order to support our stagnating economy. This outcome is likely to be at least in part, factored into Sterling’s current valuation. Therefore whilst I do not expect a rate cut to boost the Pound’s value, we may not see an overly aggressive drop if the anticipated 0.25% cut does indeed come to fruition. I do feel however, that a rate cut alongside an increase in the BoE’s Quantitative Easing (QE) programme is likely to put additional pressure on GBP exchange rates and a drop in the Pound’s value is the likely outcome.
The UK economy has been clouded by negative market perception since our decision to leave the EU and whilst Sterling found a foothold following some political stability, the overall perception has remained cautionary. The uncertain position the UK finds itself in is unique and therefore until we have at some clear understanding of how and when we will facilitate our exit from the EU, any aggressive, sustainable Sterling gains are unlikely.
We also need to consider the possibility that governor Mark Carney & the BoE will decide to keep rates on hold and not adjust our QE programme. If this were to occur I would expect Sterling to spike but based on Carney’s recent comments and pre-warnings about how a Brexit would negatively affect the UK economy, I do expect some action to be taken.
Under current conditions those clients holding GBP should be looking at short-term opportunities, as we’ve seen this morning following worse than expected Eurozone Retail Sales figures. This has inadvertently pushed Sterling’s value up but whilst we continue to see this distorted movement, it is extremely difficult to forecast even for a few weeks.
For that reason I would be looking to protect any Sterling positions ahead of tomorrow’s BoE interest rate decision at Midday and not gamble on what has become an increasingly volatile and uncertain market.
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