UK Interest Rate Uncertainty sees Volatility for the Pound

Will the pound weaken ahead?

The pound has been on a rollercoaster lately. Why is this? Well, it is because interest rate expectations keep changing for the UK.

In the summer, the expectation was UK interest rates could rise as high as 6% in the New Year. It is no coincidence that at that time, the pound bought nearly 1.18 Euros, and over 1.30 on GBPUSD.

Since then, the Bank of England has ‘paused’ twice and not raised rates any further. Therefore, we have seen the pound weaker, as interest rate expectations are lower.

UK Inflation data drops more than expected

The big news this morning for the pound is that UK Inflation data has dropped more than expected. It has come in at 4.6%, versus the 4.8% expected.

This is a large drop from the previous reading of 6.7%, and shows finally the Bank of England getting a handle on this hot topic.

UK Inflation has been a key driver of interest rate policy by the Bank of England. Essentially, it is the Bank of England’s job to keep inflation at 2%. Inflation has therefore been well over target for quite some time now.

With the figure now falling to its lowest in two years, it eases pressure on the Bank of England to have higher interest rates.

Lower interest rates, or expectations of lower interest rates , will typically lead to a weaker currency. Sterling could therefore be in the firing line ahead, as markets begin to focus on the prospect of lower rates.

What will 2024 bring for the pound?

As we get closer to the end of the year, the market will soon be looking to 2024 in more detail. Have you made any plans for FX transfers in the New Year?

With a UK election, the prospect of recession and expectations of lower interest rates, there are a number of factors which could easily weigh on confidence moving into the New Year.

For a free, no obligation currency review and 2024 strategy consultation, please email me Jonathan Watson on [email protected]

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Thank you for reading and I look forward to speaking to you soon.