In a fairly frantic day yesterday, sterling swung by over 1% against the US dollar while continuing to flirt with an 18-month high against the euro.
The Bank of England (BoE) opted, like its European and US counterparts and as expected, to keep interest rates on hold. In, apparently, the first three-way split vote among the Monetary Policy Committee (MPC) since 2008, two voted for a 0.25% rise, one for a 0.25% drop and the other six to hold rates. In comments afterwards, governor of the BoE Andrew Bailey said that “we need to see more evidence that inflation will fall further, and stay low, before we are able to lower interest rates.”
The lone MPC support for a reduction came from Swati Dinghra, who pointed out the time lag between rate movements and their impact on the economy. Bailey said afterwards that about 30% of the previous tightening from the Bank of England is still to come through to the real economy. There is now a seven-week gap before the next MPC decision, with a rate cut on 21st March being priced at 12%, but most diarising June for the first cut.
With the US Federal Reserve also making an interest rate decision, GBP/USD moved up and down by around 1% over the last two days, leading one analyst to describe it as “six weeks of trading hell”. However, once the movements were shaken out GBP/USD has strengthened by 0.4% compared to last Friday and GBP/EUR remained stable. Both are around 1%-1.5% up on the start of the year, however.
If you are feeling the heat of rapidly changing exchange rates and wish to lock in those gains, secure a fixed exchange rate now with a forward contract; call your account manager on 020 7898 0541 to get started.
The economic data continues to be positive for the US, with ISM Manufacturing PMI leaping to 49.1 in January, a 15-month high. This afternoon we will hear Non-Farm Payrolls (NFP). It is expected to fall well below 200,000, and unemployment to rise. However, earlier this week JOLTs job openings showed a surge in numbers, so maybe NFP will follow suit.
