Will the pound keep rising? To assess how the Bank of England meeting Thursday will affect the pound, we can look at the forecasts.
We researched data across 54 banks and just 9 think GBPEUR will be above current levels (1.1462) in the coming months.
The other 80% plus forecasters, indicated rates will be below 1.14. The research shows there might not be much headroom on GBPEUR levels.
The pound ended the first week of May well. Sterling hit the highest points of the year against the Euro, and a one-year high against the US dollar.
On a £500,000 purchase of Euros, you now get an extra €17,000 from February’s lows, and the same transfer into US dollars achieves an extra $42,600 from the March low.
Crucial week ahead for the pound
If you have an exchange to convert pounds now or in the future, the pound is enjoying fresh highs against many currencies.
However, we are about to have an important event with the latest Bank of England interest rate decision. I have been pointing out for some weeks the importance of this week’s decision, you can read here.
Getting ‘the best rate’ involves timing and preparedness. To help our clients take advantage of the market, we offer a range of options to help them maximise their position.
Please contact me for more information on strategy and what to expect [email protected]
The rise of sterling has largely been down to events elsewhere, with both the Eurozone and United States scaling back interest rate hikes.
The US dollar accounts for 60% of globally traded FX, and the Euro 20%.
With the pound coming in around 5%, it has been ‘lifted’ by the weakness of these two currencies.
Interest rates are a key factor in determining the relative strength or weakness of a currency. When interest rates are raised, we can typically see a currency strengthen.
And when interest rates are lowered, we can often see a currency lose value.
This is because just like a higher interest rate on a bank account will attract investment, a higher (or lower) interest rate by a central bank will feed through into the attractiveness of that currency.
Will the UK upset the recent trend of central bank decisions?
On Thursday next week, we have the latest Bank of England interest rate decision, where it will be the UK’s turn to enter the interest rate party.
The Bank of England is expected to raise rates next week, just like the US Federal Reserve and the ECB. What is less clear is the effect on sterling.
The commentary of the Fed and the ECB indicated a slightly softer outlook for further interest rate hikes ahead. This led to a weakening of both currencies.
There is positive news the UK economy has so far avoided recession. But, there are a number of worries over high inflation in the UK. This has ended up hampering consumer spending and putting pressure on wages.
The pound could easily suffer a similar fate to both the Euro and US dollar. And fall on a less than positive interest rate outlook ahead.
Thursday is looking like the key day for the pound this week
Thursday’s news is the key focus for the pound. So, a sensible FX strategy should be factoring in the potential outcomes here.
The King’s coronation bank holiday in the UK makes for a more condensed trading week.
The crucial Bank of England meeting and bigger movements on sterling rates last week could mean increased volatility this week.
For more information on what to expect next week please contact me at [email protected]
I am one of the senior traders at one of the UK’s largest FX brokerages. My team and I will be happy to share our research and market insight.
Thank you for reading,
Jonathan
