Market Alert – Sterling outlook changes

Jonathan Watson
Jonathan Watson

Next Wednesday is a key date for anyone with an interest in sterling. The Bank of England will announce its QIR or Quarterly Inflation Report which will provide insight into just how the pound will perform for the next few sessions. Whether you are buying or selling sterling this release is likely to create some movement on the markets which will alter the value of your currency purchase.

I am of the opinion some sterling weakness is likely and it is for a reason I have been highlighting for much of 2014. That is the gulf between what the Bank of England is saying about interest rates and what the market has priced in.

80% of currency transactions are speculative. The reason we see movement on exchange rates is indicative of what the market thinks or feels may happen. Since Mark Carney took office the pound has performed very well as the UK economy has improved. By tying Unemployment to the raising of interest rates focus has been very much on a UK interest rate hike. And perfectly legitimately the market has over bought sterling in anticipation of UK interest rates being raised sooner. If you look at the language of Mark Carney and the Bank of England however any possible rate hike is much further ahead than the market speculators are guessing.

Therefore I think despite the improvements in the UK economy warranting increased confidence, these high expectations surrounding sterling may now be misplaced and the risk to the downside has increased. Tomorrow we have some Industrial and Manufacturing data which last month caused sterling to weaken. We also have Trade Balance data tomorrow which we know is one of the major negatives surrounding sterling and the UK economy.

The outlook therefore for sterling has changed and just like the market has been subtly amending its positions anyone considering an international money transfer involving sterling too, should take note.

We are specialist currency brokers who offer market insight and commentary alongside award winning exchange rates. if you have a transaction to consider, small differences in your rate can make a huge impact on the amount of currency you receive.

For further information please contact the author directly on jmw@currencies.co.uk or call 01494 787 478 and ask to speak with Jonathan.