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The Bank of England makes its latest decision today, which could have a massive impact on sterling.
The time of reckoning is upon the pound, as it must now navigate both the Bank of England’s interest rate decision today and Friday’s GDP figures before reaching the relative safety of the weekend.
Sterling has slid in the second half of this week ahead of the key events. Once again, predictions lean heavily in favour of the Bank holding interest rates. Yet with inflationary pressures subsiding and growth weak, the sense is that we’re entering the final stretch of the 5.25% era.
While homeowners and businesses will be dreaming of a cut, perhaps the most we can expect at this meeting is for more detail on timing. Policymakers have so far been short on detail, but they do have a habit of signposting changes in a bid to prepare markets.
GBP/EUR was little changed yesterday, while sterling struggled to fight off pressure from the US dollar. EUR/USD had shed around 0.25% by the end of the European session, but remained well above where it started the week.
The US dollar is still benefitting from the belief that the Federal Reserve’s trajectory and that of its rival central banks has diverged. Markets expect the BoE and the European Central Bank (ECB) to cut this summer as the Fed waits until September at the earliest.
It’s worth bearing in mind that the current narrative is completely different from the one at the start of the year. Back in January, it was presumed that the Fed would move quickly and aggressively to cut rates, perhaps as many as five or six times over 2024. Things change fast in the world of finance, and for currency markets (as well as your budget), that means the shadow of volatility always looms.
Sweden’s Riksbank yesterday decided to cut interest rates from 4% to 3.75%. That marks the first time it has lowered interest rates since 2016, a remarkable feat given the immense interest rate volatility from other central banks since the pandemic.
In other news, some of the hottest stocks of the lockdown period – think stable bike manufacturer Peloton and video conference service Zoom – are among fifty companies to have shed $1.5bn in market value since the start of 2021. According to a Financial Times report, a good chunk of that period’s trendiest stocks have since plummeted, as behavioural changes that were thought would become entrenched have faded away.
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 account manager on 020 3918 7255 to get started.
GBP: Under pressure
The pound has come under pressure this week with the UK economy firmly in the line of fire. For sterling, much will depend on the reaction to the Bank of England’s press conference and the GDP figures that arrive tomorrow.
GBP/USD: the past year
EUR: Holding steady
There was a time this year when the euro struggled on a weekly basis. That period thankfully seems to be behind it, with the single currency now able to fight off interest rate speculation with minimal effect.
GBP/EUR: the past year
USD: Under the radar
A rare quiet week for US data has allowed the US dollar to fly slightly under the radar. That is rarely possible, but a slight drop in risk appetite has attracted attention to the dollar all the while.
EUR/USD: the past year
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