The Bank of England are set to announce their latest decision on interest rate policy at midday today. Inflation has become embedded in the UK economy and the bank are tasked at keeping inflation below 2%. The current rate of inflation is over 10%.
Interest rate policy is a key tool in managing inflation. A central bank will raise interest rates in an attempt to cool the economy down and bring inflation under control. The bank has raised interest rates at the last 8 meetings.
Today they are expected to raise rates by 75 basis points, which would be the biggest hike since 1989 taking rates to the highest level for 14 years. In theory, this should lend support to the pound and boost sterling exchange rates.
However, the pound has found little support following the last few interest rate hikes. This is because the bank has followed these decisions with negative commentary regarding the UK economy.
There could be significant downside risk for the pound if the bank raises rates by less than 75 points or if they suggest that they will slow down their current cycle of rate hikes. It has been widely reported that the bank will raise at this meeting so movements may already be ‘priced in’ to the current rates.
The pound finished yesterday’s session softer across the board following the Fed’s interest rate announcement. US interest rates are now at 4% following another ‘jumbo’ 75-point hike.
The dollar gained value against a basket of major currencies, including the euro, pound, aussie and loonie. Cable (GBPUSD) lost close to 1%.
A transfer of £100,000 is buying $2500 less vs the highs of the week. USDEUR pushed close to the 1.02 handle.
Today could prove key for sterling exchange rates moving forward and it would be wise to expect significant volatility surrounding the event.
If you would like assistance managing your currency risk or any future international transfers, please feel free to reach out to me directly at [email protected]. Please reach out this morning if you require assistance ahead of the bank’s decision.
