At the time of writing the Pound is trading towards the top end of its 2023 ranges against most major currency pairs.
Last week, the Bank of England opted to hike interest rates by 0.5% which came as a surprise to financial markets, after a hike of 0.25% was expected.
Sterling exchange rates were quite volatile in the aftermath of the decision to raise rates by 0.5%, and GBP/EUR peaked just below 1.1750 which is the highest level the pair have reached so far in 2023, and just over 2-cents from the annual high.
Not only has the Pound been generally climbing against most major currency pairs, but the Euro has also seen weakness recently which has helped boost the GBP/EUR exchange rate. The weakness for the Euro is a result of Germany technically falling into recession this year after two consecutive quarters of their economy shrinking.
There have been some predictions that Germany will break out of recession due to growth in the second quarter of 2023, but the impact has arguably been felt by the Euro after the currency has weakened against both GBP and the US Dollar.
A similar pattern could be felt by the Pound if the UK falls into recession as some analysts are predicting.
Inflation levels have been increasing within the UK, which is why the Bank of England has hiked interest rates 13-consecutive times with the base rate now sitting at 5%. There are concerns over the knock-on effects of the dramatic increase in the cost of living and mortgage rates within the UK and how they could push the UK into recession. This is worth following as the Pound could be impacted by negative growth coupled with the increasing cost of living.
A number of Bank of England members will be speaking this week including Governor Andrew Bailey tomorrow afternoon. Another important data release to be aware of is this Friday’s GDP data which covers economic growth in the UK. If you wish to discuss these data releases in further detail do feel free to get in touch.