Well there we have it, the Bank of England have, as expected, raised interest rates to 0.5%. This was widely expected and what we are seeing today is a classic case of ‘Buy the rumour, sell the fact’.
We have been stating on this blog all week that if they did raise rates and not all members voted for a hike, then it was likely the Pound would fall. Only 7 of the 9 members voted for the hike, and the result is the Pound now trading lower across the board. This is because the hike had been largely priced in to the vale of the Pound already, and the fact that we probably won’t see another hike until 2019 has weakened Sterling significantly. Today’s hike is not a surprise, and it would have needed a bigger hike or all 9 members of the MPC to vote for a hike to push the Pound higher.
As I stated recently, the levels of GBP/EUR at €1.14 had been reached several times in the last few months but subsequently dropped away, and this is a trend we have seen repeated again.
As you can see from the chart below, GBP/EUR rates fell to €1.1250 immediately when the announcement came. With focus now likely to shift to politics and Brexit, I wouldn’t be surprised to see the Pound fall further in the coming months.
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