This Thursday is the latest UK Bank of England Interest Rate decision, where there is a prediction for interest rates to be raised to 4% from their current 3.5% level. There is a high expectation this will be the case, with the news effectively priced in according to some commentary in the press.
Typically speaking, a higher interest rate will lead to a stronger pound since a higher interest rate generally makes a currency more attractive to hold by investors. In a similar fashion to a higher bank account rate of interest attracting more savers, the pound in theory will receive more investment from investors when there are better rates of interest on offer.
Looking to tomorrow, the news will be monitored closely to determine the BoE’s next move, to gauge if higher interest rates will be necessary again in the future.
The rising interest rates for the UK and globally are a response to rising and persistent inflation, which has seen central banks around the world respond. This has in some respects dampened the effects of the higher interest rates since many others are performing the same activity for the same reasons.
The pound is not just at the mercy of UK interest rates, another key factor in determining its value and current sentiment is market sentiment and the economic outlook. Unfortunately for the UK, a number of negative news stories are not particularly helping to brighten the mood, with many reports of strikes and the recent IMF story the UK is expected to have lower growth than Russia this year.
The pound may find itself unmoved in some cases if the news comes in as expected and there is little reason for investors to be overly positive or negative following the results. What it does appear though is, there is little reason for investors to be overly positive for the pound, hence sterling trading historically lower versus many currencies.
Thank you for reading and if you have any currency exchanges to consider, I would be interested to share with you the latest news and forecasts to help you make an informed choice regarding what will suit you the best.