Sterling remains stable after ECB interest rate hike

A Rollarcoaster Week for GBP EUR - Weekly Review June 18th 

The European Central Bank (ECB) confirmed yesterday that interest rates in the eurozone would be raised by 75-basis points. Euro sellers would have been hoping for a bounce in rates following the decision, but the single currency softened against a number of major currencies.

It is likely that a 75-basis point hike was already priced into the rates with the figure well reported a couple of weeks ahead of time.

The decision proved positive for GBPEUR, with the pound pushing close to monthly highs. Bar the 17th of October, yesterday’s high was the best level seen for more than 6 weeks.

A transfer of £200,000, is buying €11,000 more which can make a significant difference to costings when purchasing a property overseas.

Now could prove a window of opportunity for sterling sellers as the UK’s economic outlook is not positive. The pound is likely to be impacted once again by decisions made in Westminster. Reports are growing that the government could announce tax hikes during next month’s budget to combat the issues faced with managing public finances.

The UK is already facing a cost-of-living crisis with households spending more on energy, food, and fuel. This has decreased consumers disposable income leading to poor retail sales and a reading of negative growth in August.

Tax hikes would be another squeeze on disposable income which could lead to a deeper and longer recession in the UK.

The dollar gained back some of the ground it lost during Wednesday’s session. GDP came out at 2.6% vs expectations of 0.35%. The US economy is still managing to grow despite the global economic crisis. Initial jobless claims were also lighter than expected.

Positive economic data means the Federal Reserve will not be discouraged to raise interest rates as planned to combat high inflation. A hawkish Fed on Wednesday could push USDEUR and USDGBP back to levels seen earlier this month.

At Lumon, we have several different contract options that can help you minimise risk during uncertain times in the market. We can also set rate alerts and monitor the market for you.

If you have any upcoming requirement involving any currency, and wish to speak with a specialist, please feel free to reach out directly on [email protected]