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The Bank of England (IR Stone / Shutterstock.com)
Sterling surged against all-comers yesterday following the Bank of England’s (BoE) interest rate cut. It was a day of drama for its Monetary Policy Committee (MPC) which had an unprecedented second vote after failing to reach a majority on the first.
In the end the split vote was for a 25-basis point cut to 4%, against a minority voting to hold rates.
In comments afterwards from BoE governor Andrew Bailey, he said there is “genuine uncertainty” over interest rate policy. Currency traders, however, clearly believe that that’s it for interest rate cuts for 2025 and they were unanimous in supporting sterling. The pound rallied, albeit only to its best against USD and EUR for a week or so.
Elsewhere on the wires, Germany’s Balance of Trade surplus shrank to €14.9bn, primarily due to a 2.1% decrease in exports to the USA and a surge in imports. But it’s all been quiet for the euro lately.
If the BoE’s interest rate cut does cause inflation to rise even beyond the 4% predicted for September it will be another headache for the chancellor who will need to find extra money for pensions and other benefits that track inflation. The pension triple lock is calculated from September’s inflation figure and is also in place for those who retire to European countries.
As well as the issue of food inflation accelerating to 4%, another price still rising is house prices, with the Halifax reporting yesterday a 0.4% rise in the past month. An improvement in prices may be being fuelled by cheaper mortgages, with two-year fixed deals now cheaper than five-year deals for the first time since the Liz Truss mini-budget.
Back to exchange rates and despite there being no more interest rate decisions from the BoE or US Federal Reserve for several weeks, there will still be plenty of data to move the currency markets. That all starts on Tuesday with unemployment and earnings data for sterling, Germany’s ZEW Economic Sentiment Index for the euro and US inflation data for the dollar.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your Business Account manager on 020 3918 7255 to get started.
GBP: Bank comments boost sterling
The pound strengthened by just over half a percent against major rivals yesterday following comments from BoE governor Andrew Bailey yesterday. In making their decisions on interest rates the BoE relies on data, and next week we have a few influential data points, starting with unemployment and earnings on Tuesday.
GBP/USD past year
EUR: Stability for single currency
Whether because all of Europe is at the beach or because there was little to interest the markets, the euro barely moved yesterday, apart from against the pound, where it weakened by 0.6% over the working day. The highlight next week will be the ZEW Economic Sentiment Index for Germany on Tuesday.
EUR/USD past year
USD: Inflation data could be key
A mixture of green and red on the charts for the US dollar yesterday, but all movements apart from against the pound were smaller than usual. The high-risk area for the dollar next week is Tuesday, with the inflation data. It’s been a little high at 2.7% and is predicted to rise further. That could well cause volatility for the dollar one way or the other.
USD/GBP past year
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