GBP/EUR, GBP/USD Exchange Rates Bearish; BoE Keep Interest Rate Low
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The Pound has reached session highs of 1.6864 against the US Dollar and 1.2602 against the Euro thus far today.
However the Pound may not gain as hoped following the Bank of England’s announcement to maintain interest rates at the current 0.50%, quelling anticipation that the UK could be the first amongst the developed nations to raise interest rates.
The Pound shot into the spotlight in the currency market following the Bank of England’s Governor, Mark Carney, stating that interest rate hikes were expected in the near future. Since then however reports from the BoE have been conflicting, and confusing to many gathering the reputation of their behaviour being similar to an ‘unreliable boyfriend’.
Carney stated in late July: ‘As the economy normalises, Bank Rate will need to start to rise in order to achieve the inflation target. But the MPC has no pre-set course and the timing of any increases in interest rates will be determined by the data.’
In the wake of poor UK data and ambiguity surrounding hikes, Sterling has fallen against other majors dramatically depreciating by 0.1% in the latter month.
Expert in the field Lee Hardman stated: ‘The next couple of weeks are going to be key for Pound direction in the near term. Market reaction will all come in the following week when we get the release of the Inflation Report and then the minutes in the week after.’
The Pound may see some fluctuation on Friday as Construction Output, Total Trade Balance, and Visible Trade Balance figures are published.
However, until the meeting minutes are published in the latter half of this month, the Pound could remain bearish against the US Dollar. The minutes will indicate the percentage of the nine Monetary Policy Committee (MPC) board members that have voted to keep interest rates at the current low.
Expert in the field Daniel Vernazza stated: ‘All the attention will be on whether or not there is a split vote.’
If the policy makers do divide over the prospect of rate hikes, the Pound could soar as faith in the UK economic recovery becomes prominent.
Vernazza continued: ‘Our expectation is that one or two members will vote for a hike, with a sizeable risk that no one does.’
At present it appears the Pound will remain bearish until the meeting minutes or a string of positive data is published. At present the US Dollar is trading up against Sterling at 0.5933.