The Pound enjoyed a rally at the end of last week, after consistent losses after the past two Fridays had left anyone with a Pound to Euro or Pound to Dollar interest fairly disheartened.
The driving force behind this upward trend for once isn’t concentrated in the twists and turns of the UK political scene, the worries of far right candidates coming to power in the EU, or Donald’s Trump’s latest scandal in the US.
Instead the Pound was boosted by the latest hints by the Governor of the Bank of England, Mark Carney, that an interest rate rise in the UK, though not forthcoming this month, was effectively guaranteed in the months to come.
This was due to the current inflation levels in the UK, which a rate rise would seek to control by giving further incentive for UK citizens to save rather than spend, and not drive prices higher through increased buying activity. The cost of imports with a weaker Pound is doing enough to boost that already.
Investors jumped at the opportunity to hold Pounds with the idea that their capital returns would see a greater increase further down the line. This drove Pound to Euro and Pound to Dollar upwards through increased demand.
This is also why the Pound’s greatest gains were recorded against the Euro, with the Euro’s benchmark interest rate currently moored at 0.05%, and the UK’s expected to rise to 0.5% should Carney stick to his guns.
So what next?
With the Dutch elections over, and the French elections still a month away, the focus can arguably be solely on the UK’s triggering of Article 50 this month.
The Pound has been taking a bit of a beating, given that Nicola Sturgeon is doing her best to say that triggering Article 50 is akin to calling for a second Scottish Referendum. Theresa May held fire triggering Article 50 this week to avoid giving the SNP ammunition at their weekend Conference, but there are still warning lights in front of many Euro and Dollar buyers.
With forecasts now heavily dependent on an evolving landscape, it is key to have contact with a broker established ahead of time to avoid missing out in these situations, whether these be opportunities or sudden-drops which you need to be made aware of immediately.
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