This afternoon the Bank of England had the opportunity to increase interest rates to the highest level in a decade, although all voting members opted to keep rates unchanged and voted 9-0 in favour of this.
Sterling saw slight gains as it’s emerged that 3rd Quarter pay growth may actually be higher than originally expected, and this paves the way for future interest rate hikes in future. At the time of writing the Pound to Euro rate is trading towards the top end of its trend over the past month, and it’s also trading towards the top end of its longer trends against many other major currency pairs also.
The markets were expecting the base rate to remain the same so there were no surprises, but I think the comments are what pushed the Pound’s value higher. In the current climate the markets are mostly driven by Brexit related updates and sentiment, so looking to economic updates isn’t usually the best way to follow when there will be market movements although today’s update bucks that trend.
Many within the markets expect to see the next interest rate hike to come in the 3rd Quarter of next year. By then we will have more clarity as the where the UK stands in relation to the Brexit so if the current plans continue we could see the base rate reach 1% towards the end of next year.
From the Euro perspective the current asset purchasing program, which was introduced to stimulate the waning economy is expected to finish at the end of this year. There are also no interest rate increases expected until towards the end of next year, so the situation is similar for the Euro as it is for the Pound. Brexit is the main driver of GBP/EUR exchange rate fluctuations.
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