Will the pound keep rising? Focus turns to the Bank of England meeting Thursday

The pound finished the first week of May in great shape, testing the highest points of the year against the Euro, and a one-year high against the US dollar.

On a £500,000 purchase of Euros, you are now getting an extra €17,000 from the lows in February of this year, and the same transfer into US dollars would get you an extra $42,600 from the 2023 lows in March.

Will the pound keep rising? Well our FX teams have researched data across 54 different banks, with only 9 thinking GBPEUR will be much above current levels in the coming months. With the other 80% plus forecasters, indicating rates below 1.14 in the coming months.

Current interbank rates at the time of writing are 1.1462, so the research we have conducted shows there might not be too much more headroom on GBPEUR levels in the coming weeks.

If you are considering an exchange to convert into or out of pounds in the coming days, weeks and months, the pound is currently testing fresh highs against many currencies, but we are about to have an important event with the latest Bank of England interest rate decision.

Getting ‘the best rate’ is all about timing and preparedness. To help our clients take advantage of the market, we offer a range of options to help them maximise their position. For more information on strategy and what to expect, please contact myself Jonathan on [email protected]

The rise of sterling last week is largely been down to events elsewhere, with both the Eurozone and United States appearing to be scaling back their interest rate hike cycles. The effect of this has been to weaken both currencies and with the US dollar accounting for 60% of globally traded FX, and the Euro 20%, the pound coming in around 5% has been ‘lifted’ by the weakness of these two currencies.

Interest rates are a key factor in determining the relative strength or weakness of a currency. When interest rates are raised, we can typically see a currency strengthen. And when interest rates are lowered, we can often see a currency lose value.

This is because just like a higher interest rate on a bank account will attract investment, a higher (or lower) interest rate by a central bank will feed through into the attractiveness of that currency.

On Thursday next week, we have the latest Bank of England interest rate decision, where it will be the UK’s turn to enter the interest rate party.

Just like the US Federal Reserve and the ECB (European Central Bank), it is expected the Bank of England will be raising interest rates, but what is less clear is the effect on sterling.

Last week, we saw both the Fed and the ECB raise rates, but the accompanying commentary indicated a slightly softer outlook for further interest rate hikes ahead, thereby weakening both currencies.

Despite the positive news the UK economy has so far avoided recession, the are a number of worries over the effects of stubbornly high inflation in the UK, hampering consumer spending and putting pressure on wages.

The pound could easily suffer a similar fate to both the Euro and US dollar, falling on a less than positive interest rate outlook ahead. For any clients buying or selling the pound, Thursday’s news is the key focus and a sensible FX strategy should be factoring in the potential outcomes here.

With sterling testing fresh highs, we are in a very interesting situation ahead of Thursday’s Bank of England decision. The longer weekend because of the King’s coronation in the UK, makes for a more condensed trading week, which might also increase volatility, given the importance of the Bank of England meeting and the bigger movements we had on sterling rates last week.

For more information on what to expect next week and strategies to help maximise your transaction, please speak to me Jonathan by emailing [email protected]

I am one of the senior traders at one of the UK’s largest FX brokerages and will be happy to share our research and market insight, and do my best to support you with your transactions.

Thank you for reading,

Jonathan

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