Sterling recovers slightly on BoE comments

Sterling found a little much-needed support today, on speculation that maybe the Bank of England will raise rates soon after all. There’s been a little uncertainty recently, with some members of the MPC wanting to raise rates, and other wanting to hold off. One of the rate setters earlier, Mr Saunders, said that much of the spare capacity on the economy has now been used up, and that interest rates may need to rise faster than markets expect. This helped push up Sterling/Euro rates, but not by much. At the time of writing GBPEUR remains in the low €1.13’s.

Sterling gains on interest rates and better data

As regular readers will know, the hint of interest rates going up tends to strengthen a currency. This is due to the higher return on offer for investors increasing demand. I do think that rates will rise at least once this year, however these hikes are likely to be gradual and limited. Due to this I can’t see that further rate hike speculation will do much to bolster the Pound much further.

We did also see some gains for the Pound after construction figures beat forecast. To me this suggests that the economic dip we saw earlier in the year is related to the cold snap in March. If economic releases continue to confirm this, then it could cause the Pound to recover further. However I think GBPEUR in particular will struggle to break through the €1.14 barrier. This seems to be a level of resistance that the Pound can’t break through.

Will Sterling go up or down this week?

The next key data release to watch out for is tomorrow’s Services PMI numbers. Services dominate the UK economy so the reading is important. The markets are pricing in a number of 54. Anything higher that this will push the Pound up, anything lower will send it down. We also have a speech by BoE governor Mark Carney on Thursday. Any hints at rates moving up would again be Sterling positive. Finally on Friday, Theresa May will attempt to agree plans for a way forward on a future EU/UK customs agreement with the cabinet and MP’s in chequers. If there is progress made with Brexit, this could also help the Pound. It’s a big ‘if’ though. I think that continued uncertainty in this area is what is keeping the Pound weak right now, and I can’t see a breakthrough around the corner.

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