The pound has seen considerable gains against the majority of major currencies during yesterday’s trading after the Bank of England (BOE) interest rate decision. Rates were kept at 0.5% which was widely predicted, but it was comments from the Monetary Policy Committee (MPC) following the rate decision that caused a significant spike for Sterling.
The MPC increased economic growth forecasts for the UK citing a stronger global economic outlook which could lead to a raise in interest rates sooner rather than later. There is now apparently a 75% chance of hike in interest rates in May and a raise in rate by August has already been factored in. I am not convinced however, the uncertainty surrounding phase two of Brexit talks does not bode well for the UK economy. It should also be taken into account that pre-Brexit the BoE would constantly make hints at change sin rates yet did not make a change for six years.
We have already seen the pound suffer since yesterday’s gains. This can be attributed to comments from Michel Barnier, chief EU negotiator who made the following comments:
• Irish border solution must be precise, clear
• UK withdrawal from customs union would make border checks inevitable
• there must be no ambiguity on Irish border deal
• UK has raised substantial issues over transition period
• substantial disagreements over transition period
• transition not a given if disagreements persist
I think that Sterling will struggle to make any significant gains until we have more firm news on negotiations rather than rumours. If we look at GBP/EUR for example short-medium term I would not have higher expectations than 1.15.
There is also news that George Soros who some deem responsible for Black Wednesday in 1992 has donated £400k to the Best for Britain campaign. The Best of Britain’s aim is to oust Theresa May and get a second referendum. The popularity of the campaign could have a significant impact on Sterling value.