Exchange Rate Forecast

Exchange rate forecasts and foreign currency news

Pound supported by increased chance of May interest rate hike

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Earlier today the Bank of England confirmed that they would be keeping interest rates on hold, but the voting pattern of the 9 members showed that 2 of the 9 members actually voted for an interest rate hike.

With Average Earnings figures surpassing UK inflation levels for the first time in a long time this has provided further support for the Bank of England to look at raising interest rates in the near future. At the moment the likelihood is that we’ll see an interest rate hike in May 2018 and this is why we have seen the Pound make some gains versus all the major currencies during today’s trading session.

With the Bank of England having raised interest rates towards the end of last year in order to combat rising inflation I think there is clearly a rising appetite for another interest rate hike to come and this has provided the Pound with some much needed support.

As we go into tomorrow’s trading session the EU summit is likely to cause a lot of movement for Sterling exchange rates as, depending on how the talks go this could have a big impact on exchange rates, so if you’re making a transfer with Pounds it will be very important to keep a close eye out on what could happen tomorrow.

We end the week with the latest Bank of England Quarterly Bulletin and this will also in my opinion provide details of reasons why an interest rate hike may be coming, so I expect the Pound to end the week on a high against the Euro in particular as long as the EU summit also does not cause too many problems.

We have had one of the most positive weeks for Sterling in many months so it may be worth taking advantage of current rates you you are looking to sell Pounds.

Sterling exchange rates continue to strengthen

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We have seen some huge spikes for Sterling exchange rates during the course of this week with the Pound hitting 18 month highs to buy US Dollars and breaking past pre-referendum highs.

The Pound has also hit the best rate to buy Euros in 9 months as it appears as though the tone surrounding Brexit is looking a lot more positive recently. The phase 2 of the Brexit negotiations are due to begin in March and this time I think we could actually get a little bit close to a resolution and if this does happen I expect the Pound to make gains against all major currencies.

Inflation levels in the UK also remain above the Government’s target and the Bank of England primary objective is to maintain economic growth as well as control inflation levels. Therefore, I think we could also see interest rates on the increase towards the end of the year if the current trend continues.

German Chancellor Angela Merkel has suggested recently that she wants Britain to maintain a close relationship with Germany and the comments from both the Dutch and Spanish finance ministers were also similar which has helped lift the value of the Pound against all major currencies.

However, the Euro has now recovered some of its losses yesterday against the Pound after President of the European Central Bank Mario Draghi left interest rates unchanged at yesterday’s monthly meeting. The general feeling is that the current QE programme will be coming to a close soon and this is in part one of the reasons for the Euro strengthening against the Pound yesterday. Draghi also commented that volatility in the exchange rate is ‘a source of uncertainty’ and that it would ‘require monitoring’.

UK GDP figures are due out at 9:30am this morning so keep a close eye out on the data release as this is likely to have a big impact on Sterling.

UK Inflation data comes out as expected

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Key news this morning on the Pound was Inflation data which has come out as expected and saw sterling hold onto the recent gains we had seen. Inter Bank rates on GBPEUR remain in the mid 1.12’s whilst GBPUSD is also holding firm in the 1.37’s. The Pound has begun 2018 on a positive footing making headway against most currencies as confidence in the outcomes from Brexit increases. Whilst there are significant challenges ahead which could see the Pound weaker, the completion of the withdrawal agreement in December has given a most positive platform for the Pound.

The Inflation data came in at 3% which underscores the rising levels of Inflation predicted for the UK at present. The Pound is benefitting from the prospect of further interest rate hikes in 2018, however the big challenges ahead with Brexit will without doubt be a cause for concern. Clients looking to buy or sell the Pound should be very conscious of the prospect of the increased volatility once Brexit talks begin again. All in all, it seems the Pound should track the same ranges of late against most currencies (except the US dollar) in January, there is no major data scheduled which I would say would trigger moves outside of these more familiar levels.

Having said that, any big changes in the economic data, or some unexpected announcements relating to Brexit could see the Pound breakout of these levels. With Brexit talks on the transition beginning soon and trade talks not far behind there will soon be plenty of topics for discussion which could influence Sterling rates. Whilst Brexit is the biggest factor, economic data will now take on slightly more significance as there is a lack of any new developments on Brexit. Clients looking to buy or sell the Pound should pay particular attention to the economic data coming through as this might move the rates more than usual.

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