Could the Pound fall further following the latest Bank of England update?

GBP AUD Dips Again Ahead of BoE Rate Decision

Last Thursday the Bank of England caught the markets off-guard and voted to keep interest rates on hold.

This broke the recent trend of continuously hiking interest rates at every opportunity, and it was the first time since December 2021 that the BoE opted not to hike rates, breaking a streak of 14-consecutive interest rate hikes.

At the beginning of last week, the markets had predicted an 80% chance of another rate increase so understandably the Pound weakened when the rate was paused.

A slowing down of the UK economy is predominantly behind the decision, and the BoE has also cut growth forecasts for the rest of the year.

Most notably GBP/USD has fallen to a 6-month low as the last time cable was trading this low was back in March. The Pound has lost almost 10-cents against the US Dollar since the highs of 1.3143 back in July.

The GBP to EUR exchange rate has also lost value since the July highs, although not to same extent as GBP/EUR has lost just under 3-cents since the July highs.

After a busy week of data releases last week this week is light on economic data out of the UK, with GBP likely to be driven by sentiment as the markets digest the decision and updates from the Bank of England last week.

It may be the case that there will be no further amendments to interest rates by the BoE for the remainder of the year, whereas the Fed Reserve in the US is expected to hike interest rates which could push GBP/USD even lower.

At the end of the week inflation data for both Germany specifically and the Eurozone as a whole will be released which could help the markets second guess the European Central Banks next moves regarding monetary policy.

Will the Bank of England stop hiking interest rates after next week’s expected hike, and how could this impact GBP exchange rates?

GBP USD Exchange Rate Plunges to Lowest Since September 2020

The Bank of England is expected to hike interest rates once again on the 21st of September, bringing the base rate of interest up to 5.5%. This would be a 15th consecutive interest rate hike from the central bank, with the rate currently sitting at a 15-year high.

Throughout the year the increasing rate hikes have helped push the Pound higher against most currency pairs, and the Pound was the strongest performing currency of the G10 in the first half of the year.

Expectations of further hikes have been downgraded though, and this has had a knock-on effect to the Pound’s value especially against the US Dollar.

Previously, economists were pricing in hikes of up to 6% and potentially higher although the outlook has become more bearish in recent weeks. The Governor of the Bank of England, Andrew Bailey recently said that the BoE is ‘much nearer’ to peak interest rates and this comment has swayed opinion on the BoE expected plans for future interest rates hikes.

The impact on GBP exchange rates has been very clear especially in regard to GBP/USD. The pair are currently trading around a 3-month low and last week they fell below the 1.2500 psychological level. This is over a 6-cent drop from the highs in summer and shows GBP weakness.

Whilst the Pound hasn’t dropped by much at all so far against the Euro, if the GBP/EUR pair follow the pattern of GBP/USD there could be some distance for GBP to fall.

The expectation now is for next week’s interest rate rise to 5.5% to be the last one after the comments by governor Bailey. I think the key topic after that hike will be how long the markets expect to see the interest rates up at these elevated levels, and this could determine the Pound’s strength or weakness moving forward.

Will GBP exchange rates drop throughout the remainder of the year?

GBP AUD Dips Again Ahead of BoE Rate Decision

Sterling exchange rates have been in the headlines often throughout 2023 so far, as the currency was the strongest performing currency of the G10 in the first half of the year.

As the result of the gains made by the Pound, GBP/EUR is currently trading within 1-cent of its 52-week high making the conversion of Pounds into Euros an attractive proposition.

Although GBP/USD had a very strong first half of the year, the Pound has begun to gradually drift from its highs over the past few months.

GBP/USD, also known as cable, has lost almost 6-cents from its annual high which it hit back in mid-July.

The fall is due to both a strengthening US Dollar but also the expectations of fewer interest rate hikes from the Bank of England moving forward. Up until recently the expectation was for the base rate of interest to reach 6% by the end of the year, but that expectation has declined.

A more realistic rate of 5.75% is now expected which means there could be a further 0.5% hike between now and the end of the year.

The next rate hike is expected to take place this month, on the 21st of September and an increase 0.25% is expected to take place.

That leaves 0.25% between September and the end of the year, and I think that if the financial markets start to predict that this won’t take place, we could see GBP exchange rates drift once again.

So far, GBP has remained strong against the Euro, but if GBP/EUR follows a similar pattern to GBP/USD the pair could have a few cents to fall. Analysts at Danske Bank have predicted that GBP/EUR could fall as low as 1.1365 later in the year.

GBP exchange rates remain resilient despite lower expectations for further rate hikes

Pound to Euro Starts the Week off Steady

Much of the Pounds price fluctuations this year have been driven by increases in interest rate hikes along with expectations of additional interest rate hikes in future.

The Bank of England (BoE) has hiked interest rates 14-consecutive times since December 2021, and this has taken the base rate to its highest level in 15-years. The base rate of interest currently sits at 5.25%.

Those of our readers planning on making an exchange of Pounds into another currency have benefited from the bullish approach from the BoE, as the Pound has been the strongest performing currency within the G10 through 2023.

The expectation from city traders and the bets they place has been that the base rate will climb to 6% by the end of the year.

This outlook changed last week, as on Wednesday data showed that there has been a slowdown in business activity in both the services and the manufacturing sectors. Services is a key industry for the UK as it covers roughly 80% of the UK’s economic output.

The Pound has its largest daily drop against the US Dollar the day after this release, and analysts have now amended their interest rate expectations for 2023. It’s still expected that there will be another hike in September bringing the rate up to 5.5%, but the futures markets is betting that there’s just a 1 in 3 chance that rates will hit 6%. Prior to last Wednesday’s PMI releases there was over a 50% chance of 6% being reached by the end of the year.

Usually, this change in sentiment would negatively impact the Pound but so far it’s remained resilient against the EUR, although the drop against the US Dollar is noticeable.

The economic calendar for the UK is very light this week, so I expect GBP exchange rates to be driven by sentiment. GBP/EUR is trading just 1-cent from its 52-week high now.

Have GBP exchange rates peaked?

GBP EUR Holds Gains After House Price Data 

The Pound has been in the financial headlines mostly for positive reasons through 2023, and up until now it remains the best performing currency within the G10.

Increasing interest rates to try and counter stubbornly high inflation levels have pushed the Pound higher, with GBP/EUR currently trading just over 1.1700 which is just over a cent from its annual highs.

GBP/USD is currently trading just below 1.2800, although last month it managed to break above 1.3100. At its current level it’s over 8% up against the US Dollar so it’s been a strong year for the Pound so far.

Over recent weeks there have been several analysts predicting that the Pound could drop in the upcoming weeks and months.

Due to downward pressure on the housing market and mortgage pressures as fixed mortgages comes to an end, the average UK consumer is expected to feel the pinch especially as inflation levels remain high. UK inflation levels remain above its peers such as the Eurozone and the US for example.

Due to the aforementioned reasons, HSBC are predicting consumer resilience to fade, and they are no longer bullish on the Pound.

Normura, the Japanese investment bank have similar opinions and believe that the Pound has further to fall against the US Dollar after its 3-4 cent drop already from the highs in July.

Moving forward I think the expectations of whether the base rate of interest reaches 6% by the end of the year could impact Sterling exchange rates, as 6% is the current prediction.

In terms of upcoming economic data releases, tomorrow mornings PMI figures carry to potential to move the markets especially as Services data will be released. This is the most important area of the UK economy so updates on this sector can impact the GBP’s value. Do feel free to get in touch if you wish to plan a transfer around this release.

Will we continue to see the Pound gain strength against the Dollar on the back of strong PMI data or will we see the Euro and Dollar gain strength amidst further rate hike bets?

Last week saw Sterling gain ground on the Euro and the Dollar. With the Pound ending the week at 1.1711 against the Euro and 1.2738 against the Dollar.

The Pound saw strength as although the consumer price index dropped from 7.9% to 6.8% core inflation which strips out all the volatile items that affect inflation increased from 6.8% to 6.9% thus showing inflation is still embedded in the economy. This poses the question of how aggressive will the Bank of England (BoE) need to be with future rate hikes? The Pound did retreat on Friday due to a higher than expected fall in retail sales with retail sales falling to -1.2% month on month compared with an expected drop of -0.5% and Falling to -1.4% year on year against an expected -0.7%. However, theses losses were largely recovered as the sentiment was that this slump in retail sales was due to poor weather in the UK.

The data from the Eurozone did little to prevent the Pounds gains as GDP data from the Eurozone showed the Eurozone grew very little in the last quarter. On top of this there was continued uncertainty over future rate hikes in the ECB. The inflation data from the Eurozone on Friday in the form of the Core Harmonized Index of Consumer Prices did little to help this uncertainty as came out as expected at 5.5% which was no change from the previous reading.

The Pound gained ground against the Dollar in the week however these gains were capped due to strong US data and the Federal Reserve (Fed) meeting minutes opening the question around future rate hikes for the Fed. Minutes from the Feds July policy meeting showed a divide among members of the Fed about whether to increase interest rates. The strong data came in the form of retail sales which increased more than expected from an expected 0.4% increase month on month to a 0.7% increase.

On Wednesday we will see composite, manufacturing and services PMI data for the US, UK and Eurozone. For each of these PMI readings a value over 50 will show an expansion in these sectors and a value below 50 will show a contraction. This data could provide more indications of whether each respective central bank can afford to increase interest rates and how aggressive they can be with this.

There is further data for Germany, the powerhouse of Europe in the form of a Producer Price Index on Monday and Gross Domestic Product (GDP) on Friday. As Germany is the largest economy in the Eurozone, data for Germany gives indications of how the larger Eurozone is fairing. Therefore, the Producer Price Index will provide further indications into inflation in the Eurozone and the GDP data will provide further indications into the strengths of the Eurozone economy.

For the Dollar on top of the PMI data there are several speeches from Fed members on Tuesday as well as speech by the Feds chair Powell on Friday. On Thursday in the US there is Durable goods orders and initial jobless claims. Durable Goods Orders shows the state of the US production activity and initial jobless claims measure the strength in the labour market. On top of this The Jackson Hole Economic Policy Symposium which is an annal symposium where central bankers, policy experts and academics come together to focus on a topic every year takes place on Thursday and Friday. This shows there is a rich tapestry of data coming out of the US this week that could give further indication as to whether the Fed will hike rates in the future.

Will the latest inflation figures help the Pound get stronger?

Last week was a more volatile one for the Pound as GBPEUR and GBPUSD saw 1 cent swings in their pairings, ending the week at 1.159 and 1.269 respectively. Sterling had been riding the recent highs off the back of their 14th consecutive rate hike in the week prior, and there were indications from the Bank of England that this may not be the end of the hike streak. There is currently an 85% chance of another 25 basis point hike at the meeting in September and, with an expectation of the terminal interest rate around 5.75%, we may see another beyond that.

On the other hand, the Euro has been surrounded with uncertainty in recent weeks, the main question being whether we can expect to see any more interest rate hikes out of the European Central Bank in coming months. Reuters released a poll last week which stated that 37 out of 70 economists expect the ECB to hold the deposit rate at 3.75% in September, an almost 50-50 split. The previous expectation of an interest rate hike in September sat at 35%, so it seems the market is edging towards the possibility of a rate hike after all. Eurozone inflation currently sits at 5.5% which is still well above the ECB’s target of 2%. Friday also saw France and Spain surprise markets with their Consumer Price Index figures which both increased slightly, and EURGBP reached a 3-week high of 0.8668 as a result.

Gross Domestic Product figures helped the Pound bounce back, however, as the data indicated the economy is still managing to maintain a better-than-expected pace, considering the dizzying heights on interest rates. GDP in Q2 grew by 0.2%, up from 0.1% in the last quarter, and 0.5% month-on-month, up from -0.1% in the previous month, with the UK avoiding recession by a wide mark.

This week will see the release of the UK’s CPI readings on Wednesday which will display whether interest rates have managed to decrease inflation closer to the desired levels. Inflation levels from the last readings released at 7.9%, down from 8.7%, and the Bank of England are confident we will see a decline towards the 2% target level by the end of this year. The Bank recently stated, “We expect it to fall further to around 5% by the end of this year… We expect inflation to keep on falling in 2024 and reach our 2% target by early 2025.” The expectation for this month’s reading will be a 1.1% drop to 6.8%, but the last 3 readings for UK CPI have seen the market surprised as the figure was not as low as expected.

Labour data will also be released for the UK on Tuesday including Average Earnings, expected to increase by 0.1%, and the Claimant Count Change, reading of the number of unemployed people within the UK. A positive day on Tuesday, a reading above expectations on Wednesday may see the Pound push back to recent highs above 1.17 as it will be more likely we will see another interest rate hike in September. GDP figures and Employment data will also be released for the Eurozone on Wednesday as the single currency tries to gain back its recent losses.

The US Dollar underwhelmed with last week’s CPI reading which saw inflation drop to 4.7% from 4.8%. Following on from the Nonfarm payrolls release in the week prior which also underwhelmed the market, the most recent surveys show a 15% chance on an interest rate hike from the Federal Open Market Committee in September. Tuesday’s release of Retail Sales figures are tipped to increase by 0.2% in the US which may help USD gain some value to start the week off, followed by the FOMC minutes which will give us more of an indication of where monetary policy will be headed in the months to come.


GBP exchange rates remain steady but could Friday’s GDP data change this?

Pound falls against the euro but could UK GDP data save the pound tomorrow?

Now that last week’s busy economic calendar is out of the way, this week feels like more of a typical August week where economic data releases can be quite limited.

The Pound to Euro exchange rate remains around the 1.1600 level, and yesterday there was little market movement throughout the entire day of trading.

The Bank of England’s decision to hike interest rates by 0.25% as widely expected resulted in another drop for the Pound in the 24-hours after the announcement, which is a pattern we’ve seen frequently after rate hikes from the BoE. Perhaps this was due to the outside chance of another 0.5% rate hike not materialising.

Usually there would be a number of speeches from members of a central bank in the wake of an interest rate change although in this instance that’s not the case. The BoE chief economist Huw Pill spoke yesterday which had no impact on GBP exchange rates, and that speech was the only one scheduled for the week by a BoE policymaker.

Moving forward the path for monetary policy remains uncertain, so I expect economic data releases to be followed closely as they could determine the policy outlook throughout the rest of 2023. The expectation is for the BoE to hike rates up to around 6% by the end of the year, so if economic data releases result in a deviation from this number, we could see GBP exchange rates readjust.

On Friday, UK GDP will be released in one of the only data releases of the week for the UK. This could be followed very closely for this reason and 0.2% annualised growth is expected.

Outside of the UK the US Inflation report will be released on Thursday which could alter GBP/USD exchange rates, so this is also worth being aware of.

Could the Bank of England surprise the markets again this week?

GBP EUR Dips After Spanish Inflation Jump 

The Pound has managed to hold onto much of its recent gains against the Euro recently, as it continues to trade towards the top end of its annual range.

Last month increasing expectations of further interest rate hikes pushed the Pound to a high of 1.1750, and at the time of writing the GBP/EUR pair are trading within 0.75 cents of this 11-month high.

This week, the Bank of England (BoE) is expected to raise interest rates to the highest level in 15-years.

The general expectation is for a hike of 0.25% which would take the base rate of interest up to 5.25%. Financial markets will be following the lunchtime update on Thursday closely though, as back on the 22nd of June when the BoE last hiked interest rates, they sprung a surprise and opted to hike the rate by 0.5% which was above market expectations.

City traders have outlined a 75% chance of 0.25% and a 25% chance of 0.5%. If the Bank of England spring another surprise it could result in a market reaction so if you’re following the Pound closely it’s worth being aware of this economic data release.

A greater hike than expected could push GBP higher, as this would be a more bullish move than expected.

The commentary from the BoE that comes after the policy update is also important, as up until now the expectation for rate hikes is set to peak around 6% but last months drop in inflation could result in a lower peak.

Aside from this monetary policy update there will also be second readings for PMI releases this week for Manufacturing, Construction and Services figures. No changes are expected from the initial readings so if the readers remain the same, I think Thursday’s BoE update will be the key release this week for GBP exchange rates.

Could UK inflation data be the most important data release this week?

Tomorrow morning UK inflation rates will be released in the early hours in what appears to be the most important economic release this week, at least for the UK markets and the Pound.

The inflation figures are measured in the form of CPI (Consumer Price Index) and as this release can impact monetary policy adopted by the Bank of England, the release carries the potential to influence the currency markets.

The expectation is for an annualised CPI figure of 8.2% to be released for June. This is a decline from the previous months figure of 8.7% but still above the Bank of England’s June forecast of 7.9%.

The 8.2% prediction will be key, as if the rate of inflation remains above this level it increases the chances of future interest rate hikes. This expectation of further rate hikes has resulted in the Pound climbing in recent months.

Whilst the UK economy isn’t thriving the Pound has been due to the 13 consecutive interest rate hikes carried out by the BoE (Bank of England), with expectations of further hikes as soon as next month.

The current expectation is for the base rate of interest to reach at least 6% by the end of the year, and tomorrows data release could determine whether or not this happens hence the build-up within the finance world to tomorrow’s release.

There could be a drop in the Pounds value if the figure released is below 8.2% as if inflationary pressures ease, there may not be the need for the BoE to continue hiking exchange rates.

Economic policy, and its anticipated direction has been the main driver of GBP exchange rates recently. This contrasts with the past 5-years or so when politics was most certainly the main driver of GBP exchange rates due to Brexit.

Do register your interest with us if you’re planning on making a currency exchange involving the Pound and wish to be kept updated regarding potential market movements.

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