Sterling made gains across the board yesterday, following positive noises from Bank of England (BoE) governor Mark Carney regarding a prospective interest rate hike.
His bullish tone and the fact one of the nine members voted in favour of a rate rise in yesterday’s policy meeting, boosted investor confidence in the UK economy and the Pound benefited as a result.
With indications that other members were also close to voting in favour of a hike, GBP/EUR moved back through 1.15 and GBP/USD closed in on 1.24.
Despite Carney’s upbeat tone, I would be wary about assuming a rate hike is just around the corner and that Sterling will continue on its upwards trend. Rising inflation is a cause for concern but if wages continue to fall and inflation continues to go up, meaning people have less money, then raising interest rates will only worsen this situation.
For this reason and of course economic concerns surrounding the UK’s upcoming Brexit, a rate hike over the next 6-12 months is unlikely in my opinion.
Therefore, it is short-term opportunities that clients holding Sterling should be looking for, rather than holding out for longer-term sustainable gains. The currency markets never move in just one direction whatever the economic conditions but do investors really have enough confidence in the UK economy at present for clients to gamble on a major upturn?
Looking at Brexit and UK Prime Minister Theresa May has called on Scotland not to call a second referendum whilst the UK negotiates the terms of its exit. This would only heap further pressure on the UK economy and the Pound would most likely devalue as a result and with so much uncertainty about how the Pound will react once Article 50 is finally invoked, there are still so many unanswered questions for market analysts to contend with.
This leads me back to my point that the current market instability surrounding Sterling, means gambling on a major improvement from current levels is a dangerous game to play. Whilst no one can say for certain how the market will develop over the coming weeks and months, the fact the UK is going it alone and will have to negotiate its standing in the global economy, with no guarantees of a relationship with our closest neighbours the EU, means I would be looking to take advantage of yesterday’s market spike.
If you have an upcoming Sterling currency transfer to make, then we can help you navigate this turbulent market by keeping clients up to speed with all the latest developments regarding Brexit and beyond.
If you would like us to monitor the market for you ahead of a currency exchange, or simply wish to compare our award winning exchange rates with your current provider, then please feel free to contact me directly on 0044 1494 787 478 and ask one of the team for Matt.
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