EDITOR’S NOTE: A currency exchange specialist at forex brokers TorFX looks at the factors driving the pound’s exchange rate in the week gone by.
The Pound got a small boost towards the end of last week thanks to a surprise split at the Bank of England.
As expected the central bank left interest rates unchanged with no plans for purchasing more assets. What took markets by surprise was the news that three of the policy makers on the committee broke ranks and voted for higher rates, compared to five who voted to leave interest rates unchanged.
Traders were expecting a unanimous vote to leave rates unchanged in the face of political turbulence, economic slowdown, and stagnant wage growth outweighing the threat of rising inflation and a failing Pound. With a large current account deficit, the UK imports inflation when the Pound falls.
Sterling rallied on the news that some policymakers are in favour of hiking rates to protect the Pound and head off inflation, but it should be noted that traders are not convinced that the BoE actually intends to hike rates anytime soon. Most analysts reckon the hawkish votes were designed to prop-up the Pound, which could subsequently reduce import costs and dampen inflationary pressures.
Prior to the UK central bank surprise, Sterling had come under pressure in reaction to some disappointing retail sales numbers, which markets interpreted as a further sign that declines in real wage growth (earnings not keeping up with inflation) are starting to weigh on consumer spending in an economy that depends on it.
Data also came out showing that Eurozone consumer prices decelerated last month, which could act as a drag on demand for the single currency, as it would give the already-cautious European Central Bank more justification to be dovish.
This article is written by a foreign-currency broker working for TorFX, a forex broker established in 2004 to provide foreign exchange and international payments to both individuals and companies. TorFX is authorised by the Financial Conduct Authority under the Payment Service Regulations 2009 for the provision of payment services. Their FCA number is 517320. To verify their authorisation, you can visit the Financial Services Register and search the register using their FCA number. SPI is not responsible for the opinions of guest contributors.