The pound had risen quite strongly against the Euro and other currencies in 2022 as the Bank of England lifted interest rates to higher levels. This trend of higher interest rates has continued into 2023 but the strength the pound displayed at those moments in 2022 has not. Will the pound get stronger when the Bank of England next raise interest rates?
The next meeting is 23rd March, literally a month to the day. Expectations are for further hikes this year, perhaps two or three but the expectation for sterling strength might need to be temered. This is because the Bank of England appears to be coming near the end of the interest rate hike cycle, and the FX markets look at longer term forecasts as well as more day to day and near events.
Interest rates are a crucial factor in determining the relative strength or weakness of the currency concerned, with a higher interest rate forecast or implemented by a central bank, typically leading to a stronger currency.
This is important for clients looking to buy or sell FX in the future to be aware of since understanding what is driving the market can help you to make smarter and more informed decisions on your currency strategy.
The next Bank of England meeting might well see some volatility as the market adjusts its forecasts depending on the expectations ahead for the interest rate and also the UK economy.
The most recent data we have shows that actually the UK economy is performing better than expected and has avoided some of the worst predictions that were forecast for this year. Inflation is falling which is positive, and actually relieves some of the pressure on the Bank of England to raise interest rates.
Interest rate hikes have been a major factor to combat the high inflation the UK is experiencing, the current trend lower on inflation would make further interest rate hikes less likely.
Are you considering an FX payment in or out of the UK, Europe or US in the coming weeks? We also deal with clients in New Zealand, Australia, Canada, and more all over the world. We have access to a huge amount of forecasting information across multiple sources and can help private individuals and business gain insight into the latest outlook of different pairings in the FX markets.
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