It’s a big week for exchange rates, as the Bank of England (BoE) and US Federal Reserve follow the European Central Bank last week with a decision on interest rates.
Since all three central banks started seriously raising rates in early spring 2022 in the wake of rising inflation following the Russian invasion of Ukraine (and several other factors too), the pound has lost two to three percent against the euro and a little more against the US dollar.
The rate rising cycle is now coming to an end though, and the markets will be asking, have they done enough to put the inflation genie back in the bottle? Or have they gone too far and killed off the post-pandemic recovery? The rest of us will be asking, what will that do to exchange rates?
We shall see over the next few months, but there are other matters, such as the rising oil price, that could scupper the monetary policymakers’ hopes. Over the summer a barrel of oil has increased in price from under $70 per barrel to over $90, and Rishi Sunak may rue the promise to cut inflation by half by year end, since it is largely out of his government’s control.
Also in the political dimension, the chancellor Jeremy Hunt will be wanting to pull something out of the hat in the Autumn Statement to reverse the opinion polls. Is there anything that could be a game-changer?
Meanwhile, this morning’s comment from Sir Keir Starmer that he is looking for a better Brexit deal and closer ties with Europe, is a reminder that there are many issues that may affect exchange rates in the year ahead.
To avoid any of that affecting your budget to buy a property or retire abroad, why not call your trader on 020 8108 5163 and consider fixing your exchange rate?
