It appears as though the Bank of England are potentially gearing up towards an interest rate hike on Thursday when the Central Bank holds their latest monetary policy meeting.
The most recent meeting showed a 6-3 split in favour of keeping interest rates on hold and this month could be the first rate hike in a long time for the UK.
The Quarterly Inflation Report is also due out on Thursday and if it remains high as it has done then this will provide justification in support of a rate hike.
Typically an interest rate hike would boost the Pound but on this occasion it will be interesting to see the rhetoric used by the Bank of England as to whether or not we’ll see any further rate hikes planned for the future.
Indeed, it could be argued that the Bank of England are hiking rates at the moment in order to plan ahead for any potential rate cuts next year when Brexit takes effect in March 2019.
Looking back at what happened two years ago the Central Bank cut interest rates immediately after the Brexit vote in order to steady the economy and ensure that consumers were still encouraged to spend in order to avoid a big slowdown.
Therefore, any dovish tone or a smaller hike than expected may not have the desired effect on Sterling exchange rates as may usually be the case.
The other news keeping Sterling under a lot of pressure at the moment is the ongoing Brexit talks. The EU chief negotiator Michel Barnier has disagreed with Theresa May’s recent customs plan and this lack of certainty is continuing to weigh heavily on the Pound.
Ultimately, the Pound vs Euro rate will likely be dominated by what happens to interest rates on Thursday but even if we do see a gain I expect it to be fairly short lived.
Therefore, if you’re thinking about buying Euros then make sure you’re well prepared.
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