Today is one of the key days of the month for anyone with an interest in the value of sterling as once again it is the time for Mervyn King and the remaining 8 members of the Monetary Policy Committee to release the latest interest rate decision. Recently Christine Legarde, the head of the International Monetary Fund, has been calling for the Bank to cut rates from the already record low of 0.5%, a move that I personally would find very surprising and unlikely. I, as with many of my colleagues, believe rates will remain on hold at 0.5% and as a result it is unlikely the pound will experience too much movement. To me what is far more important for the short term direction in Sterling exchange rates will be whether the Bank has decided to extend QE (Quantitative Easing).
QE is a subject that we have touched on numerous occasions and quite honestly might be a little tedious for regular followers of this website, however its importance cannot be avoided. In its simplest term it is the act of the Bank printing more money in order to get the high street banks lending, give the economy a boost and in theory help the UK economy dig itself out of recession. Its fundamentals are far more technical than that but you can do your own research should you wish!! What is important however is the affect ‘printing money’ has on the value of the host currency. Again if you look at a simple ‘supply’ and ‘demand’ model, the more of a product the cheaper it becomes and the same is the case for currency. Should more Sterling be introduced to the money supply then the value of Sterling will fall, hence a pound becomes less valuable – for this reason should you be transferring Sterling to any currency today or in the coming days and weeks, then an extension of QE should cause concern. I personally feel today may be a little too early for the bank to increase QE, however I think it is very much at the forefront of the MPC’s mind. Should QE not be extended we may see a small spike for the pound, but be in a position to take advantage as I do feel further monetary stimulus is just around the corner.
Do discuss my views and to run through the service we provide at currencies.co.uk then please email Mike at [email protected] and I will happily run through my thoughts and opinions to try and help you make the best decision when it comes to your individual transfer.