Interest Rate speculation weakens Sterling

Good morning. The Pound has fallen away this week, due to speculation about when interest rates may rise in the UK. In today’s post we’ll take a look at why the Pound has fallen against the Euro, and whether the Pound will go back up in the short to medium term.

Interest rate speculation weakens Sterling

In the most recent Bank of England meeting, 3 of the 9 members voted to raise interest rates. This caused the Pound to rise on speculation that rates could go up in August. (When there is a chance of interest rates rising, a currency usually strengthens, and vice versa). However, this week we’ve had various speeches by Bank of England members that cast doubt on interest rates any time soon.

One of the MPC members advocating for higher interest rates for some time. He is leaving the MPC in August however. His replacement also gave a speech this week, and it seems that he is not going to be in favour of raising the interest rate too quickly. The Pound has weakened a little due to his comments. We have further speeches today at 2.30pm and 5pm. Any hints at an interest rate hike could lend support to the Pound, however comments that suggest that we’ll continue to see the level at 0.5% for some time could weaken Sterling.

European Council Meeting unlikely to provide any Brexit progress

Another thing to watch is the European Council Meeting. This runs today and tomorrow. I did think that there could be some developments with Brexit here, but now I’m not so sure. It will probably be discussed, however it seems to me that most member states are more concerned with other issues at the moment such as immigration. The fact that no progress is likely to be made at the meeting could weight on the Pound and move it lower. This coupled with Interest Rate speculation that I’ve mentioned above could push the Pound into the €1.12’s.

Tomorrow could provide some further direction for exchange rates. We have some new growth figures from the UK, and inflation numbers from the EU, both of which could move the Pound/Euro rate.

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