It was another poor week for sterling exchange rates due to ‘Super’ Thursday’s data releases. Super Thursday is when the Bank of England releases their latest Interest Rate decision, Minutes and Inflation report. Due to the data releases GBPEUR dropped 2 1/2 cents and GBPUSD 1 1/2 cents.
As for the interest rate decision, the Monetary Policy Committee voted unanimously to keep interest rates at historic lows of 0.5%. This was the first time since August 2015. It now appears the first hike will not occur until at least next year and interest rates will not rise above 1% until 2019.
The Bank of England minutes suggested that the UK economy had slowed slightly more than expected and also exclaimed an increase in population and changes in taxes meant that the populations wage growth had become weaker than anticipated and would not increase as expected. The bank had predicted last autumn that wage growth would rise at 3.75%, however this was cut to 3%.
It also appeared to be doom and gloom for the inflation report. Governor Mark Carney exclaimed the constant dropping in oil prices is not helping the problem and went on to suggest inflation will remain at worrying lows for the time being. However the Governor did try and lighten the mood by predicting the target 2% inflation level would be hit within a couple of years.
It possibly could be another tricky week for sterling exchange rates. Tuesday we have UK trade numbers. As Europe is the UK’s largest trade partner, I believe GBPEUR was overvalued throughout December therefore trade numbers could suffer. I expect sterling to lost ground across the board Tuesday morning. Later in the week on Thursday the NIESR GDP estimate is to be released. With the Bank of England painted such a bleak picture I wouldn’t be surprised to see the NIESR follow suit.
The start of 2016 has just shown that the UK’s economic recovery is far from complete and with the BOE’s negative commentary and a possible upcoming referendum (possibly as early as June) I expect this year is going to be testing for the pound. If you have to buy a foreign currency this year, now is the time to start creating a strategy to make it as cheap as possible and this is where I can help.
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