Will the next Bank of England hike lift the pound?
The pound could be in for some potentially better fortunes, if we do see the Bank of England raising interest rates next month.
Typically, we would state that a higher interest rate leads to a stronger currency. This is not always the case, but the idea is a higher interest rate makes that currency more attractive to hold.
The pound has been stronger this year owing to a higher interest rate, as it encourages more investment.
However, higher interest rates can also lead to uncertainty, as it can slow down the respective economy.
Today, we have seen some UK data which could be indicative that higher interest rates are holding back the UK Economy.
UK PMI Data disappoints the markets
The latest UK Services PMI data has disappointed the markets, with indications that the UK Economy could be contracting.
The data came in at 48.7, versus the 51.0 predicted. With such data, the reading below 50 indicates a potential contraction in the economy.
The pound has therefore been weaker following this news, as it indicates the most important component of the UK Economy is not holding up as well as expected.
Will this lead to a recession ahead? Well, it is certainly indicative of such a scenario, and could be a reason for a weaker pound ahead.
Will the pound rise or fall before the end of August?
The last few days of August do see a bank holiday, and this could lead to some changes in the market, as investors cover off positions.
With the longer weekend, businesses and other currency market participants could be buying and selling larger sums, to protect themselves form any uncertainty.
The coming months will see continued talk about interest rates, it can be said that whilst a higher interest rate often strengthens the currency concerned. This is not always the case.
