Sterling hit its highest level against the euro for six weeks and against the US dollar since the end of August yesterday, as policymakers from the Bank of England travelled the length of the country telling anyone who will listen that interest rates are not coming down any time soon.
To lock in today’s high for the whole of next year, please call your trader on 020 7898 0541.
Whereas the analogy had been Table Mountain for the interest rate graph, the new buzz phrase is “higher and longer”, and both the governor of the Bank of England Andrew Bailey and Jonathan Haskel, a member of the interest-rate setting committee, were using it.
The markets duly got the message that interest rates will not be coming down before well into 2024, and the pound strengthened.
However, that hawkish outlook may well be priced in now and the increase in the strength of sterling may stop and potentially be reversed. The problems for the economy could well be mounting up, as the effects of the interest rate rises really begin to kick in after Christmas.
To misquote Trading Places, people who have overspent on their credit card at Christmas on the GI Joe with the Kung Fu grip will suddenly get much higher bills than they’re used to and the economy will rapidly go into recession.
We can’t know what will happen, but if the Bank is really intent on keeping their foot on the brake – and why should we doubt them? – the outlook for the pound in the longer term has to be at risk. Therefore, if you make any kind of deal abroad at today’s rate it would be extremely risky not to hedge it against a big decrease in the value of sterling. You can do that, as already mentioned, with a forward contract. Please call your trader.
