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

By
Jonathan Watson
-
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.

Jonathan

[email protected]

GBP exchange rates climb as focus turns to the Bank of England this week

By
Joe Wright
-
Pound to Euro Gains After Weaker German Retail Sales

The Bank of England is expected to increase the base rate of interest for the 12th consecutive time this Thursday, taking the base rate up to 4.5%.

An increase of 0.25% is expected, as the Bank of England continues its struggle to contain high inflation levels. Britain has the highest level of inflation within the G7 group of advanced economies and inflation remains above 10% despite the Bank of England targeting 2%.

Increasing interest rates often strengthen the underlying currency and this is a pattern we’ve seen in recent weeks, as GBP/USD has climbed to towards the highest levels of the past year.

The GBP/EUR exchange rate has also seen some gains recently, with the pair testing the 1.1500 mid-market level this morning for the first time since early December of 2022. This leaves the current trade levels sitting at a 6-month high.

If the Bank of England hikes rates as expected this Thursday to 4.5%, it may not be the end of the BoE’s rate hiking cycle.

This week investment bank Goldman Sachs has warned that the base rate could reach as high as 5% in order to counter the stubbornly high inflation levels Britain is facing.

This could push the Pound higher so it’s worth following the BoE’s interest rate decisions. If you would like to be kept up to date regarding interest rates or price spikes for the Pound do feel free to register your interest with us.

Another important data release out of the UK will be this Friday’s GDP release, which covers economic output in the UK for both March and the first quarter of this year.

If you would like to discuss an upcoming currency transfer you plan on making, do feel free to get in touch regarding your plans. We will be happy to offer insight, quotes, and also highlight the upcoming economic releases which could impact the currency pair you’re focused on.

You can contact me (Joe) directly on [email protected] with an outline of your plans, and I’ll be happy to offer insight and prices.

Will pound sterling keep rising? Focus on Bank of England Thursday

By
Jonathan Watson
-
GBP EUR Still Struggling Below 1.1600 Level 

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

Local elections cause movement for Pound vs the US Dollar

By
Tom Holian
-

Pound Dollar rates hit highest level this year

The Pound US Dollar exchange rate has hit its highest level during 2023.

Sterling made gains vs the US Dollar following the news from the local elections showing that the Tories had lost a lot of seats overnight.

With the results still due to come out for many areas it will be interesting to see how this pans out.

Labour has so far gained a huge number as well as the Liberal Democrats compared to previous elections which is not a good sign for Rishi Sunak’s government.

US Federal Reserve hikes Interest Rates again

In the meantime as we turn the focus back towards the US economy we have seen the Federal Reserve increase interest rates yet again.

Interest rates are now sitting at their highest level in 16 years in the world’s leading economy. This is the tenth hike in just 14 months.

One of the main reasons for the US Dollar weakness is that the Fed have suggested that their rate hiking cycle may be slowing down and this could be the last one for the time being.

Inflation has dropped to 5% recently which shows that the Fed’s aggressive policy appears to be working.

Typically the way to combat rising inflation is to hike rates which is what has been done recently.

This has caused the Dollar to weaken as it shows that the rate cycle may be ending which means investors may look at alternatives for yields elsewhere.

It also shows that the economy is starting to settle which can mean that investors are also more confident at placing funds in more riskier alternatives.

For more information or a free quote when buying or selling US Dollars feel free to contact me directly.

I have worked for one of the UK’s longest established brokers since 2003 and would love to hear from you.

Tom Holian [email protected]

Fed signals pause in interest rate hikes – will the ECB help or hinder sterling?

By
Richard Nugent
-

The US Federal reserve announced last night that they would be raising interest rates for the 10th consecutive time. The move raised US interest rates by 25 basis points up to 5.25%, the highest level since 2007.

In general, interest rate rises can lend support to the value of the currency, however, the US dollar lost ground across the board following the Fed’s announcement. The Fed indicated that future interest rate rises could be limited given the potential restraint on the economy. Markets have digested this as a ‘dovish’ hike which has led to dollar weakness. Expectations for future rises is now limited which could also weigh on the dollar.

Cable (GBPUSD) rose close to yearly-highs during the evening session while EURUSD rose to 13-month highs. EURUSD (the most traded currency pair globally) could be in for further volatility today as markets await the ECB decision.

Expectations are for the ECB to raise interest rates by 25 basis points which could lend support to the value of the euro and push EURGBP and EURUSD higher. However, a lot will depend on the manner of the hike and the commentary provided. A ‘dovish’ hike would suggest a pause in interest rate rises at the next meeting.

Sterling remains one of the strongest performing currencies of 2023 while subdued against the value the single currency. Future exchange rates will depend on the message from the ECB today and the Bank of England next week. Goldman Sachs are predicting 3 further hikes from the BoE which you would expect to help sterling’s value against the euro. Tomorrow will see the release of monthly non-farm payroll data in the US which has a tendency to cause volatility in the currency markets.

If you have a currency exchange involving any major currency and wish to discuss with a specialist how fluctuations could impact the cost, please contact me at [email protected].

Sterling in a strong position ahead of early May bank holiday

By
Richard Nugent
-
Pound to Euro Starts the Week off Steady

Economic data released at the end of last week showed positive and negative signals for the UK’s economic outlook. UK retail sales are down 3.1% year-on-year and 0.9% month-on-month. The monthly figure is worse than expected with markets expecting a negative reading of 0.5%.

PMI data showed some positive signs but was once again mixed. Services PMI trumped expectations of 52.9 with a reading of 54.9. However, manufacturing PMI was lower at 46.6 vs expectations of 48.5. A reading above 50 signals an expansion within the sector and a reading below signals a contraction. The UK is widely regarded as services-led economy, therefore, the expansion within the services sector is positive new for the pound and it’s economic outlook.

Sterling exchange rates remain elevated against a number of it’s major counterparts despite the mixed bag of data. GBPCAD, GBPAUD, GBPNZD and cable (GBPUSD) are all trading within range of the yearly high. GBPCAD is close to the 13-month high, GBPAUD and GBPNZD are both close to their 14-month highs respectively.

With sterling seemingly performing as one of the strongest currencies in 2023, why do GBPEUR rates remain subdued.

In the eurozone there has also been mixed data. Services PMI also signaled an expansion at 56.6 but manufacturing showed a contraction at 45.5. Tomorrow eyes will be watching for the release of growth (GDP) figures. Markets are expecting a positive growth reading of 1.4%.

The key driver for GBPEUR at the moment is interest rate policy. The European Central Bank are talking up their commitment to continue raising interest rates. Interest rates in the EU could now exceed the UK and US which is buoying the euro against the dollar and the pound. EURUSD is within range of the 12-month high and EURGBP is at a 6-week high.

If you have a currency exchange involving any major currency and wish to discuss with a specialist how fluctuations could impact the cost, please contact me at [email protected].

Sell in May, Go Away ! Will the pound be weaker next month?

By
Jonathan Watson
-
GBP EUR Recovers from Early Losses on EU Trade

Will the pound weaken in May? Well, on observing the last seven years, we notice the old adage of “sell in May, go away”, ringing true for sterling on six out of those seven occasions. Our FX research teams have been busy analysing the data, to try and give our clients the most relevant facts to support their decision making.

The average move lower we have noted is around 2.4%, from the two-month period start of May to end of June. On a £100,000 transaction, that move lower at current interbank rates equates to €2700, remember this is just an average. Whilst the period does include the Brexit vote, the figures do not lie, and this is a great example of the inherent potential risks of not having an appropriate FX strategy in place.

Will this continue for the pound in May 2023? There is certainly the ingredients for a bumpy start as we have both the European Central Bank and the Bank of England interest rate decisions, which with both central banks predicted to raise interest rates, could throw up some volatility on GBPEUR rates as well other currencies connected to either of those.

In early April, sterling to Euro exchange rates re-tested 2023 highs of the year against the Euro and the multi-week highs against the US dollar. As we end the month, it has been less positive however, and we appear likely to end lower on those pairings than where we began.

To assist with the planning and execution of your transactions, we provide a comprehensive analysis of the latest FX forecasts, across a very broad range of different sources, to give a wider-range overview of where the FX markets are headed.

The next two weeks are offering plenty of risk events from a currency market perspective, with the potential to change the outlook on interest rates and therefore FX rates.

If you have any questions over any of the points outlined here, or wish to double check you have an appropriate FX risk strategy in place for your currency payments, please contact me directly using my contact details below, with a brief outline of your transaction.

A phone number is usually helpful too, as a call is the best way to not only explain everything, but also for you to ask me questions.

You can if you prefer call me on 020 4506 5672 (00 44 204 506 5672 from overseas).

I am Associate Director at one of the UK’s largest FX brokerages and with 14 years’ experience handling both corporate and private client FX transactions, will be most interested to assist you with any information and support you might be seeking.

Jonathan Watson

[email protected]

LinkedIn profile here https://www.linkedin.com/in/jonathan-watson-46591057/ 

UK inflation remains high – will the BoE give the pound a boost?

By
Richard Nugent
-

UK inflation remains high – will the BoE give the pound a boost?

Economic data released yesterday shows UK inflation (CPI) remains elevated above 10.1%. Forecasters were expecting inflation to fall to 9.8% following last month’s reading of 10.4%. The inflation reduction is positive for the UK and was largely driven by a fall in fuel and oil prices. However, food prices continue to rise as the UK consumer feels the squeeze of the continuing cost of living crisis.

Sterling exchange rates have remained relatively unchanged following the release of data, GBPEUR is trading within the 1.13 bracket and cable (GBPUSD) is within the 1.24 handle. These are levels we have become accustomed to over the past couple of weeks.

The latest inflation reading has meant expectations for further interest hikes from the Bank of England have increased. This is likely supporting the value of the pound against the euro and the dollar. Inflation remains elevated in the Eurozone at 5.7%, which was forecast prior to yesterdays release.

Although, Eurozone inflation is significantly lower than the UK, the European Central Bank remain committed to bring inflation down. Several members have suggested further interest rate hikes are to be expected. The bullish approach from the ECB is supporting the euro against its major counterparts. EURUSD is trading within range of the yearly-high.

In the short term, markets will have their eyes on tomorrows release of UK retail sales, and the UK and EU release of manufacturing and services PMI. PMI data measures whether certain sectors are expanding or contracting and can cause currency volatility.

The BoE will be watching closely for any positive or less than negative retail sales and PMI data. If the data suggests that the UK economy is struggling, the bank may think twice about raising rates too high. They will not want to cool down the economy too aggressively with their interest rate hikes as this presents the danger of the UK falling into recession. GBPEUR fell into the 1.05s during the last recession.

If you have a currency exchange involving the pound and any major currency and wish to discuss the markets and how fluctuations could impact the cost, please contact me at [email protected].

UK avoids recession – will the pound strengthen moving forward?

By
Richard Nugent
-

Pound Sterling has been range-bound against many of its major counterparts over the last two weeks. Most notably, GBPEUR which has traded within a cent from the high to low. Cable (GBPUSD) has traded within a 2-cent range and struggled to find support above the 1.25 handle.

The pound has strengthened in value due to the revised UK economic forecasts, however, it would seem the positivity has ended here for the pound and that new data will be needed to push the pound out of its current range.

This morning UK GDP figures confirmed that the economy was stagnant and did not grow month-month to February. The data confirms that the UK economy is not shrinking and therefore rights off the possibility of a technical recession but also shows a slow down in activity from last month where the economy grew by 0.4%. GDP could hinder the value of the pound given that markets were expecting a growth reading of 0.1%.

Weakly jobs data and monthly inflation (PPI) data will be released later today in the US which will be watched closely by the Federal Reserve. Yesterday, CPI showed another slowdown of inflation in the US which feeds into the narrative that the Fed’s current rate hike cycle could be over. This has lent support to the value of the euro and pound against the dollar. There could be further dollar weakness if another inflation reduction is confirmed.

Bank of England Chief economist Huw Pill will be speaking today, and markets will keep a close eye out for any comments on future monetary policy. The European Central Bank are behind the BoE in terms of interest rates. If the BoE stop raising rates and the ECB continue, then there could be downward pressure on the pound.

If you have a currency exchange involving the pound and any major currency and wish to discuss the markets and how fluctuations could impact the cost, please contact me at [email protected].

Will the pound continue to rise against the US dollar and Euro?

By
Jonathan Watson
-
GBP EUR Exchange Rate: Weekly Review July 16  

Sterling has been performing much better lately after improvements in the UK’s economic outlook combined with expectations that the Bank of England will be looking to raise interest rates sooner and potentially higher than previously expected.

Looking to the latest interest rate outlook, the Bank of England has been earmarked to raise interest rates in the future at some stage but this might well need to happen sooner than expected.

Overall, UK interest rates are not set to be raised until the next meeting in early May, which could be a key time for both the pound, but also the Euro and the US dollar too, with expectations for both central banks there, the US Federal Reserve, but also the ECB (European Central Bank) also predicted to raise interest rates.

The raising and lowering of interest rates is one of the biggest factors driving the strength and weakness of a currency, and whilst the pound has been stronger at times in the last year because of this, we do need to factor in the fact the other central banks globally are also looking to raise interest rates too.

Therefore, whilst the pound has been stronger, these other currencies have also been stronger. The Euro is notably much stronger against the US dollar, and for example the Australian dollar compared to more historical levels.

The rest of April has some important data releases which will influence economic and market sentiment, and might well see some changes in the economic outlook and could shape the decisions that are coming up.

Expectations ahead are far from clear but clients looking to buy or sell the pound in the future should be aware of a number of mixed forecasts from some of the big banks in their predictions.

With no clear direction being established either way on the predictions front, careful consideration of all of your options and the potential for something unexpected might be the best way forward.

Thank you for reading and if you wish to learn more, please do not hesitate to contact me directly to discuss in more detail.

Jonathan Watson

[email protected]

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Where interbank exchange rates are referenced within the website these should only be used as a guide on the performance of a market. These rates are not indicative of our exchange rates – please contact us for a quote.

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None of the information contained in this website constitutes, nor should be construed as financial advice. It should not be interpreted as a solicitation to offer to buy or sell any currency or as a recommendation to trade. Where interbank exchange rates are referenced within the website these should only be used as a guide on the performance of a market. These rates are not indicative of our exchange rates – please contact us for a quote.

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