Over the last four weeks Sterling has been on the charge against most of the major currencies with Sterling exchange rates having improved approximately 4-6%. The shift in sentiment has come from a hawkish interest rate decision earlier in the month. The Monetary Policy Committee (MPC) from the Bank of England announced that an interest rate hike could materialise as early as November this year, which was a surprise as the Bank of England were previously forecasting a rate rise towards the end of 2018.
UK Prime Minister Theresa May gave her eagerly awaited press conference in Florence on Friday, and the message was for both leading nations to be creative and open minded. However, it appears that the Michel Barnier did not receive the memo, as Brexit negotiations only 4 days later have stalled. Mr Barnier has stated “sufficient progress” needs to be made before trade negotiations can begin, however UK Brexit secretary David Davis has released a statement suggesting there is no reason why the divorce settlement cannot be negotiated alongside a future trade deal. This story will make headline news for the months to come.
Long term, if the UK completely severs ties with the EU with ‘no deal’ I expect the Pound will tumble for a period, where as if a trade deal looks likely foreign currency buyers should have something to smile about.
Events that could impact Sterling exchange rates this week
Tomorrow the UK are set to release the latest revised GDP numbers. The consensus is for no change and as this is the third revision I would be surprised if the consensus isn’t correct. Nevertheless, if you are exposed to Sterling currency transfers, keeping one eye on this release is important as any deviation could have an impact on future monetary policy decision made by the Bank of England.
Later this week Governor of the Bank of England Mark Carney is set to address the public and interest rates will no doubt be a talking point. If the governor continues with the hawkish stance this could improve Sterling’s value further.
Is a rise in the UK interest rate likely?
Clients have asked me in recent weeks if the Bank of England will raise interest rates, I am going against the grain and believe an interest rate hike is very unlikely. The governor has reported over the last 12 months that inflation has risen due to the weaker Pound.
Now that the Pound has risen by 4-6% there is a chance the shift may have curbed some of the inflationary pressures which should be reflected in future monetary policy decision. If inflation breaks through 3% this year I expect a hike will occur in quarter 1 or 2 of next year, as long as the UK have not severed ties from the EU.