Will the Pound Fall Further on Bank of England Decision and Falling Inflation?

Sterling lower after UK Inflation drops more than expected to 6.7%

The pound has dropped across the board today after UK Inflation data came in lower than expected. This is good news in one sense as the Bank of England has been trying to bring this down for many months.

Sterling has been supported by expectations of a higher interest rate in the future, with a key meeting tomorrow.

UK interest rates are much higher in the last year than in recent years, this will typically see a currency stronger.

The Bank of England was thought to have an easy decision tomorrow to hike interest rates once more, but this is less clear now.

Will the Bank of England hike UK Interest Rates tomorrow?

This is now looking like a difficult decision, with Inflation falling under its own accord.

The prospect of raising interest rates has always been a battle between controlling Inflation and seeking to prevent too much of a fall in economic growth.

The UK economy has been struggling of late, with economic growth falling more than expected. Recent economic surveys have pointed to drops in business sentiment as well, you can read about this here.

By raising interest rates too high, the Bank of England risks choking off the economic activity in the economy that is present, creating other problems.

How will the pound react in the next 24 hours?

The volatility has already begun following today’s Inflation data, and tonight is the latest US Interest Rate decision which might well prove a market mover too.

Looking at the US, the US dollar accounts for around 60% of globally traded foreign exchange. This means any shifts in the US dollar could stoke volatility in other currencies connected to it like the pound, Euro, AUD, NZD, CAD, ZAR, and many more.

Then, tomorrow is the Bank of England decision at midday, where we might well see some further volatility given the uncertainty from the interest rate decision.

With it being a near enough 50-50 split, there is real potential for a move on the pound.

Essentially, a higher interest rate could see the pound rise, whilst a pause might see sterling weaker.

Investors will closely follow the news to rebalance their positioning on all manner of investments, which could see some turbulence for the pound.

GBPEUR levels are currently 1.1550, with GBPUSD 1.2357. The pound is over two cents off a one-year high against the Euro, whilst the dollar is at its strongest against the pound since June.

If you are seeking to benefit from market movements or wish to check you have an appropriate FX strategy in place, a call with an expert like myself could prove beneficial.

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