The BoE’s decision to keep UK interest rates steady at 0.75% has strengthened the pound, because higher UK interest rates make investing in GBP-denominated assets more profitable for the world’s money managers.
As a result, more global investors want to buy sterling to place money in these British assets, lifting demand for the pound, and its value.
By comparison, when the UK’s central bank eases monetary policy, it’s less favourable to invest in GBP-denominated assets, often weighing on sterling. That however was not the case yesterday.
Only two members of the central bank’s nine-person Monetary Policy Committee (MPC) voted to reduce UK borrowing costs on Thursday, namely Michael Saunders and Jonathan Haskel.
This is in spite of the fact that, in recent weeks, up to five members of the BoE’s MPC had suggested that they’d vote in favour of easing monetary policy back to its all-time low of 0.5%, including Governor Mark Carney.
Outlook for UK Interest Rates Remains Uncertain
Looking ahead, it’s worth noting that the outlook for UK interest rates remains up-in-the-air. This is because Mr. Carney said that it’s not a case of “so far, so good, but so far, good enough” for the UK economy.
This is to say that Britain’s economic performance to date in 2020 has been enough to convince the BoE to maintain interest rates steady, but that the economy will have to continue to improve, for borrowing costs to stay at 0.75% in future.
Meanwhile, looking to today, the Eurozone’s GDP (Gross Domestic Product) figures for Q4, between October and December, and inflation data for last month, will be released at 10.00 GMT.
If you would like updates for GBP/EUR rates or have an upcoming currency transfer, please contact me directly, Lauren Buckner, using the form below.