Sterling/Euro rates have settled down a little, currently sat at around the €1.13 mark. Better than expected Services data from the UK this morning helped to stop the Pound falling and gave Sterling some support. Furthermore EU retail Sales disappointed, weakening the Euro slightly which again has helped to steady the GBP/EUR rate.
Over the last month, regular readers will know that Sterling gave it’s best performance in many years, rising by 6% to a 3 month high of €1.14+. With such a meteoric rise it was almost inevitable that at some point it would peak and come back down, and that’s what we have seen this week.
Will Pound rise if interest rates go up?
With no progress being made with Brexit negotiations, the only thing that’s keeping the Pound supported is the rumours of an interest rate hike in the UK before the end of the year. Tomorrow will give us some further clues on this, as one of the MPC members Haldane gives a speech.
This is interesting as historically he has been a ‘dove’ in wanting to hold rates for many years. He recently stated though that the time may be approaching to push rates up. Despite this, last time he again voted to leave rates on hold. His comments will be closely watched for clues as to how he might vote at the next meeting, and any signs that he will join others in voting for interest rates to go up could push the Pound higher.
However, the simple rumour of rates going up is part of the reason Sterling has already gone up so much over the last month, so it’s already partially priced in to the value of the Pound already. If rates do go up, I would expect the Pound to rise a little but it’s unlikely to do so by more than about 1%.
The rumour of higher interest rates tends to strengthen a currency due to the higher return attracting investment. The BoE’s next meeting in which they could move the rate is on the 2nd November, with another meeting on the 14th December.