Pound in for volatile day – BoE decision due.

Good Morning. The pound rose against the Euro and US Dollar and other currencies yesterday after data showed a higher-than-expected increase in UK service sector activity and as a rebound in equity markets eased risk aversion ahead of a Bank of England policy decision today.

Rates @ 08:30am are as follows:

  • GBP/EUR 1.1136
  • GBP/USD 1.6513
  • GBP/AUD 1.8231
  • GBP/NZD 2.2972
  • GBP/CAD 1.7603
  • GBP/CHF 1.6807
  • GBP/ZAR 12.644
  • GBP/JPY 149.00
  • EUR/USD 1.4825

Today we have Industrial and Manufacturing Production data for the UK, but the main news is the Interest Rate meetings for the European Central Bank and Bank of England.

Analysts expect the BoE to keep interest rates at their 0.5 % record low, but many see an extension of its quantitative easing programme to inject liquidity into the economy.

Two thirds of economists polled expect the Bank of England to top up its QE programme by at least £25bn in November after the economy unexpectedly contracted between July and September.

But recent stronger data for the manufacturing and service sectors have raised questions about the scale of increase. Analysts said the biggest risk to the market would be if the BoE decided to refrain from increasing its asset-buying scheme. This might push sterling higher on the view the excess liquidity which has kept the pound low was beginning to dry up.

So, today will be the most important for the future movements of Sterling over the next month. If they increase the measures, then I expect the pound to take a hit and exchange rates to fall. If they decide not to pump more money in, then the pound is likely to rise. Either way, I think we’ll see some significant movement today.

As mentioned above, it’s odds on that they will extend the measures, but the question is by how much.

If you have a requirement, you can fix rates in advance of this decision to protect against any adverse movement with a Forward Contract. Doing nothing means you may gain, or equally you may lose. If you do wish to wait to see what the BoE do, then consider placing Stop and Limit orders to make sure you can control any loss should markets not go your way.

Get in touch to discuss how these types of foreign exchange contracts work.

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