Bank of England Interest Rate Decision – When should I buy or sell the pound?

GBP EUR Exchange Rate: The Week Ahead October 31st

Pound sterling poised for Bank of England meeting tomorrow

Tomorrow is the eagerly awaited Bank of England interest rate decision. Expectations are locked on for a 0.25% hike from the Bank of England.

This will take interest rates in the UK to 4.5% and could lead to volatility for pound sterling. Exchange rates can be heavily influenced by changes in interest rate policy as I have written previously.

GBPEUR has hit fresh highs at 1.15 which is a six-month high. GBPUSD remains near the 13-month highs of 1.26. This is presenting an excellent opportunity for sterling holders buying these and other currencies.

Reports suggest the FX markets could be turning more positive on the pound. Investors have spent much of 2023 fearful over the UK’s economic outlook.

Good things come in threes… for some.

If the UK raises interest rates 0.25% as expected, it will be the third central bank in a row. The Eurozone and United States both raised their rates this amount last week.

What may be more attention grabbing is the commentary afterward. Financial markets will gauge the economic outlook when Governor Andrew Bailey speaks and updates inflation and growth forecasts.

Focus is on two points, the possibility of further increases or not, and the timing of when cuts will begin.

The Times reports Capital Economics envisage this the last hike by the Bank of England. They predict cuts next year take the levels down from a projected 4.5% tomorrow, to 3% by the end of 2024.

This echoes the sentiment toward both the United States and the Eurozone. Interest rate cuts are predicted for 2024 once the current interest rate hike cycles are completed.

What can we expect for the pound tomorrow and ahead?

Our latest research indicated of 54 banks, only 9 believed rates would be above 1.14 on GBPEUR.

That research, consulting all the big names in banking is coming under pressure with interbank rates at 1.15 today.

Will the pound be weaker after the latest Bank of England decision? Both the Euro and US dollar both weakened after the hikes by the ECB and the Federal Reserve.

Economic theory suggests that when an interest rate is raised, the currency would strengthen. This is not always the case in practice as the recent US and Eurozone decisions prove.

Despite our research suggesting sterling might be weaker ahead, there is no guarantee as markets, and forecaster’s views change.

The FT reports today that Citigroup has stated they were “wrong” on sterling, in their more negative predictions.

The FT also reports data from the Commodities and Futures Trading Commission showing a more positive outlook on the pound. This shows net sterling futures contracts on GBP indicate a rise rather than fall for the first time since Feb 2022.

When should I buy or sell the pound?

This is a complex question which we will endeavour to answer through careful analysis of your situation and consulting the various options we have. We also look at the latest FX research and consult decades of expertise managing FX risk for our clients.

It is only by examining the forecasts and understanding your position and your options, that you can give yourself the best chance to get a rate you will be happy with.

Thank you for reading and please contact us to learn more.


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