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Sterling exchange rates struggling following BoE

By
Richard Nugent
-

Sterling exchange rates struggling following BoE

Pound Sterling exchange rates have struggled this week following the Bank of England’s decision to keep interest rates unchanged at 5.25%.

Governor Andrew Bailey sited the continued drop in UK inflation and the UK’s weakening economic performance as the key reasons to keep rates unchanged. Interest rate rises help ease inflation by increasing the cost of borrowing. However, higher interest rates can cause economic growth to stifle.

Bailey did leave the door open for further interest rate rises this year. Future rises will be data dependent. This means UK inflation data will be key for sterling’s rates. Another uptick in inflation could see the pound rise based off interest rate expectations.

This morning inflation data released in Spain confirmed a drop in inflation. Later today we will see inflation data from Germany before readings from France, Italy, and the wider eurozone is released tomorrow.

The ECB kept interest rates unchanged at their last meeting. A drop off in Eurozone inflation would further support this decision and could cause euro weakness moving forward. EURUSD is trading close to a 9-month low.

US GDP and Jobs data is released this afternoon which could move the markets. A strong showing would support another interest rate rise. Last week, Fed chair Jerome Powell left the door open for further rises depending on data. US inflation is well above the 2% target set by the Fed but lower than levels in the UK and EU.

The dollar index which measures the strength of the dollar against a basket of currencies is at the highest since December. Inflation data could cause another spike.

In the morning UK GDP data is expected to reveal a small year-on-year growth of 0.4%. A lower-than-expected reading could cause further bad news for the pound.

Pound Sterling Forecast – Will the Pound Continue to Weaken?

By
Jonathan Watson
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GBP EUR Soars Again After UK Employment Boost

Why the pound could have further to fall?

The pound has been lower as we approach the end of September, following the Bank of England decision last week.

We did write about this decision highlighting it as a risk event here. The pause by the Bank of England has seen sterling lower as interest rates are a key driver in the currency markets.

With the prospect of a further interest rate hike for the UK being largely removed for now, the pound is weaker as investors feel the BoE is finished for the time being.

UK economic data has been pretty poor, which really indicates that the Bank of England could be taking a risk by raising interest rates further.

Higher interest rates will ultimately choke off economic activity, through lower consumer and business spending.

The latest business surveys have pointed to a potentially weaker economic outlook, this is a strong reason to avoid further hikes. And avoiding further hikes could see the pound weaker.

What other global factors must we consider regarding a weaker pound?

The pound is also lower as the US dollar has been very strong. The latest US interest rate decision saw signals the US Federal Reserve might have to continue raising interest rates.

The US economy is roaring ahead, with strong economic growth and Inflation has been rising.

By putting some extra pressure on the US to raise their interest rate, we could see real potential for a stronger US dollar.

Indeed, the US dollar has been in the ascendency against the pound and the Euro. It has pushed to its strongest points against the pound since March.

As the US dollar accounts for around 60% of globally traded foreign exchange, it can weigh and influence other currency pairs. A good example is GBPEUR, where we can argue that the stronger USD has pushed GBPUSD lower, resulting in a lower pound against other currencies.

For a free, non-obligation FX check-up, please email me Jonathan Watson using [email protected]

I have worked as an FX payments specialist for many years and can provide some useful insight and information, to help you get the most from the market.

 

Bank of England surprise the markets

By
Tom Holian
-

Bank of England keeps interest rates on hold

The Bank of England kept interest rates on hold yesterday after 14 consecutive interest rate hikes.

On Wednesday morning we saw UK inflation coming out lower than expected.

This caused the Pound to fall to its lowest level against the Euro since the end of May.

This has created some excellent opportunities for anyone looking to sell Euros to buy Pounds.

The members of the Monetary Policy Committee voted 5-4 in favour of keeping interest rates on hold.

Therefore, could this be the end of the central bank’s current monetary policy cycle?

Oil prices have also risen dramatically over the last two months so I suspect we could see inflation rising again in the next few months.

If this does happen we could see the Bank of England being put under pressure to manage rising inflation by hiking rates again.

As the decision was so close this caused the Pound to lose confidence causing it to fall briefly.

However, the drop was short lived and the market appears to have rebalanced itself.

GBPEUR exchange rates are now where we were trading prior to the announcement yesterday.

Pound falls to lowest level vs the US Dollar in 6 months

The Pound vs the US Dollar has now fallen to its lowest level to buy US Dollars in six months.

We have see more and more enquiries from clients looking to sell Dollars into Pounds recently.

The US Dollar is also trading very well vs the Euro which has also seen an increase in people moving money from Dollars into both Pounds and Euros.

If you would like more information about what is happening in the currency markets then contact me directly.

I have worked for one of the UK’s largest currency brokers for 20 years and I’m confident I can help save you money compared to you using your bank to buy currency.

Email me directly Tom Holian [email protected]

Will the Bank of England’s decision strengthen or weaken the pound?

By
Richard Nugent
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GBP EUR Rallies After Bank of England Rise in Interest Rates

Will the Bank of England’s decision strengthen or weaken the pound?

The outcome of today’s Bank of England interest rate decision will strengthen or weaken the pound moving forward. Sterling exchange rates took a big hit yesterday following an unexpected drop in inflation from 6.8% to 6.7%.

In the lead up to yesterday, many commentators and economists were expecting inflation to rise with predictions set at 7.1%. Even chancellor Jeremy Hunt warned of another uptick in price rises.

The Bank of England have raised interest rates at the last 14 meetings in attempt to bring UK inflation under control which peaked over 11% in 2022. However, recent drops in inflation show the interest rate rises are beginning to have their effect.

At the start of the week, the probability of an interest rate rise today was around 80%. Markets are now suggesting anywhere between 50-60% meaning a rise or fall may not be fully priced in to current rates. There could be significant volatility this afternoon depending on the tone of the BoE.

GBPEUR is trading within range of the 6-week low which is opportune for euro sellers. Cable (GBPUSD) is trading within range of the 4-month low which is well below many forecasts. Several banks including Citi, Standard Chartered and NAB are calling the pairing much higher.

A pause in rate hikes and a dovish tone regarding future policy could cause further trouble for cable rates. Please reach out to us below if you wish to be kept up to date with developments or call on +44 (0) 204 506 5672 and ask for Richard Nugent.

Other key events this week

This morning the Swiss National Bank unexpectedly left interest rates unchanged at 1.75%. GBPCHF has spiked following the decision.

Tomorrow morning, we will see the release of UK retail sales along with services & manufacturing PMI data from the UK, Eurozone, and US.

Retail sales is expected to decline by -1.2%. A sharper decline following a dovish BoE could spell trouble for sterling. The pound would find support with a positive reading.

PMI (Purchasing Managers Index) measures the output of the manufacturing and services sectors. A reading above 50 indicates an expansion. A reading below 50 indicates a contraction. Negative PMI data could cause volatility for all currencies involved.

Further Sterling exchange rate volatility expected in another week packed with economic data releases

By
Daniel Wright
-

Last week saw a turbulent week of trading, with GBP-EUR rates dipping to a 1 month low. The low was however short lived, and Sterling managed to claw back some strength back to 1.1660, as the European Central Bank indicated that Interest Rates have peaked.

The European Central Bank raised interest rates by 25 basis points on Thursday, to 4% – a record high by the European Central Bank (ECB). This was the bank’s 10th raise in a row. This was seen as a doveish hike by markets.

The European Central Bank said that, ‘based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.’

This signifies that policymakers believe interest rates have peaked, decreasing the likelihood of any further rate rises. It added that it expected inflation in the 20-nation bloc to fall to around 2.9% next year and 2.2% in 2025. Their target level is 2%. Interest rates in the UK are currently higher than in the eurozone at 5.25%, but UK inflation is also higher at 6.8%, and the Bank of England is expected to raise rates again this week.

The Bank of England could see its 15th consecutive raise of interest rates on Thursday 21st September. There is currently an 80% chance of this. Economists are expecting a terminal rate of 5.5% in the UK, and so we are closing in on this level, but with inflation still sky high in the UK, this could all change.

The cost of borrowing in the UK has increased to its highest level since the 2008 financial crisis, and so there is still work to be done to get inflation under control in the UK. GBP-EUR did however conclude the week of trading at 1.1620. This was after ING Bank expressed concerns over the UK housing sector, stating that a key issue for the UK moving forward is the housing market: ‘Here, the average rate on the UK mortgage stock is now 3% and expected to rise to 4% into 2024 as more refinancing works through the system.

This will deliver a hit to consumption and to house prices.’ Looking ahead, the average reading of 50 of the most notable Banks and Financial Institutions predict a GBP-EUR rate of 1.1278 in the next 3 months, about a 4 cent drop off, and a 6 month reading of 1.1252.

Last week also saw a sharp fall in GBP-USD rates, with the Pound to Dollar exchange rate falling 0.65% following Thursday’s European Central Bank interest rate decision. GBP-USD finished the week of trading below 1.24, slipping below its 200 day average. It is expected that the Federal Reserve’s Interest Rate decision on Wednesday will see rates held at 5.25-5.5%.

The FED’s goal is to control inflation and maintain full employment. With Consumer Price Index Inflation now at 3.7% for August 2023 and the jobs market showing some early signs of softness, it demonstrates that the FED’s actions have been effective. The markets currently assess the chance of a November hike happening at about 1 in 4.

This Wednesday’s meeting is particularly important as the Federal Reserve will be releasing their dot plot chart. This documents the Federal Reserve members’ individual thoughts of where they expect interest rates to go in the short term, and will be of particular interest to markets. Looking ahead, the average reading of 50 of the most notable Banks and Financial Institutions predict a GBP-USD rate of 1.2622, and a 6 month reading of 1.2679.

Data releases this week for your diary:

WEDNESDAY: GBP CPI Data – The Consumer Price Index – The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as positive (or bullish) for the GBP, while a low reading is seen as negative (or bearish). Forecast to increase to 7.1% from 6.8%.

WEDNESDAY: US Interest Rate Decision.

THURSDAY: BOE Interest Rate Decision.

THURSDAY: EUR Consumer Confidence measures the level of consumer confidence in economic activity. A high level of consumer confidence stimulates economic expansion while a low level drives to economic downturn. Forecast to drop.

FRIDAY: USD Global Manufacturing data – an important indicator of business conditions and the overall economic condition in the United States. Readings above 50 imply the economy is expanding, making investors understood it as a bullish for the USD, whereas a result below 50 points for an economic contraction, and weighs negatively on the currency. Forecast reading 47.8 drop.

FRIDAY: GBP Retail Sales – Changes in Retail Sales are widely followed as an indicator of consumer spending. Forecast growth 0.5%.

Will the ECB help or hinder Sterling exchange rates?

By
Richard Nugent
-
GBP EUR Advances Despite Better German Trade 

Will the ECB help or hinder Sterling?

Euro exchange rates hang in the balance ahead of today’s European Central Bank monetary policy meeting. The key decision could help or hinder sterling’s position against several of its counterparts.

Sterling exchange rates will react depending on the outcome of their decision. Most affected, would be GBPEUR due to the pairing including the euro, however, cable (GBPUSD) rates could also be affected.

EURUSD is the most traded currency pair globally which means significant movements on the rate can impact other pairings. A strengthening of the dollar against the euro could also lead to cable rates dropping off and vice versa. Due to the volatile nature of today, euro strength against the dollar could push GBPEUR lower but help sterling’s footing against the dollar.

The deposit rate in the EU is 3.75% and current inflation levels sit above 5% which is well above the ECBs target of 2%. Inflation is proving stubborn and is a clear issue for the eurozone, however, economic activity has begun to slow in a number of European countries and the central bank will be cautious in their approach.

A press conference will follow the meeting where President Christine Lagarde will speak. Markets will be looking to decipher any commentary suggesting future monetary policy. A suggestion of further rate hikes could buoy the euro and weaken sterling, where the opposite could cause the single currency to weaken across the board.

Interest rates and monetary policy will be the hot topic in the FX markets for the near future. US Federal Reserve and the Bank of England meet next week for their latest decisions.

If you are considering an international payment and would like to speak with a market specialist regarding today or future events, please reach out to me below.

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

By
Joe Wright
-
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.

Pound loses value as US services data boosts the Dollar

By
Richard Nugent
-
GBP USD Exchange Rate Plunges to Lowest Since September 2020

Pound loses value as US services data boosts the Dollar

Pound sterling opens softer this morning after losing value against the dollar. The sell-off begun during yesterday afternoons session. Cable (GBPUSD) rates have dropped below the key 1.25 handle which could be a signal of things to come. The pairing is currently tracking close to the 3-month low which represents a real opportunity for dollar sellers.

ISM PMI data confirmed an expansion in the US services sector last month. A reading above 50 signals an expansion in the sector. August’s data came in at 54.5 vs expectations of 52.5. The greenback strengthened against most of its major counterparts following the release.

USDEUR and USDGBP are both trading close to 3-month highs. DXY (dollar index) is the highest it has been since March.

A shift in USD strength could signal a shift in global risk appetite. Economic woes in China have been widely reported. Several of their economic data releases missed expectations and some economists have reduced predictions for GDP forecasts to well below the government’s target of 5%.

In the UK, data released by Halifax confirmed house prices have dropped 4.6% Year-on-year and 1.9% month-on-month vs expectations of -3.45% and -0.3% respectively. This is a clear signal that higher interest rates are beginning to have a strong affect on the housing market.

UK interest rates are at their highest since 2008, and the Bank of England are expected to raise them again later this month in a bid to bring inflation close to their 2% target. Higher interest rates will start negatively affecting the economy and could cause the pound to weaken moving forward.

Forecast data from Barclays suggests the pound will soften further against the euro and dollar in the next 2-3 months. GBPEUR remains within range of the yearly high, despite the recent sell-off.

Markets will closely watch the release of EU GDP data later this morning. A reading that differs to the consensus could cause further volatility.

Please contact us below for further information on currency transfers.

Sterling softer against the euro ahead of key inflation data

By
Richard Nugent
-

Sterling softer against the euro ahead of key inflation data

Pound sterling softened against the euro during yesterday’s session, reaching a low of 1.1610 on the interbank which was a two-week low for the pairing. Marginal gains for the euro represented a window of opportunity for euro sellers.

GBPEUR reached a new yearly-high last week but has since dropped back by more than a 1%.

Exchange rates continue to be driven by current and future interest rate policy. Market expectations are for the Bank of England to raise interest rates higher than the European Central Bank and Federal Reserve. The current rate is 5.25% and some predictions for the terminal rate are above 6%, leaving room for another couple of hikes.

Members of the BoE, Fed, and ECB have all stated that future interest rate policy will be determined by economic data.

This morning, German retail sales data confirmed a sharp drop off in retail spending. Year-on-year spending is down 2.2% vs expectations of -1%. Month-on-month spending is down 0.8% vs an expectation of a positive reading of 0.3%.

The German economy is the powerhouse and largest contributor to EU GDP. Therefore, this data will come as a concern to ECB members and may impact future interest rate policy. The euro has weakened and GBPEUR has moved higher following the release.

Later this morning Eurozone inflation will be watched closely by ECB members and commentators. Expectations are for a monthly rise of 0.3% and a yearly rise of 5.3%.

If inflation is higher than expected, the ECB will be under pressure to continue their current rate hike cycle. A lower-than-expected reading may change future policy and lead to a euro sell-off. EURUSD has dropped back in to the 1.08 territory.

Tomorrow will be key for all pairings involving the dollar. Non-farm payrolls (jobs) data will be released, and the consensus is for a rise of 170K vs last month’s reading of 180K. Non-farm payroll is known as the ‘monthly market mover’ so their could be significant volatility throughout the day.

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

By
Joe Wright
-
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.

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