Sterling rose by 0.08 per cent against the Euro and 0.12 per cent against the US Dollar in the immediate aftermath of the Bank of England’s interest rate decision.
As expected by economists, the central bank left the key interest rate at a record of 0.5 per cent and opted to maintain an asset purchase target of 375 Billion Pounds.
Although the UK economy has been performing well in recent months, the BoE has made it clear in the past that interest rates will remain on hold until at least the beginning of 2015 in order to shore up the nation’s recovery.
However, last month it appeared that factions were beginning to emerge within the Monetary Policy Committee.
Since taking over from his predecessor Mervyn King as Governor of the Bank of England, Mark Carney has led a united team. Last month was the first sign of diverging opinions, although all nine members of the MPC opted to hold interest rates for the time being.
As the MPC issued no statement with today’s decision we will have to wait until the minutes from the meeting are published to know what policy makers are thinking and how many voted in favour of inaction, although the odds of borrowing costs being hiked before 2015 are unlikely to be much improved unless two or more members have switched sides.
However, as a report published by Halifax earlier today demonstrated, UK house prices are surging and this (along with other headwinds) could be enough to prompt a change of heart from the MPC in the months ahead.
Similarly, the Pound has strengthened considerably since the start of the year (jumping by 9 per cent against the ‘Greenback’ and nearly 5 per cent against the Euro) and its rally has helped to restrain price pressures.
If the currency should slide it would add to the case for BoE action.
Investors began the day knowing that it would be the European Central Bank decision, and not the BoE decision, which would dictate market movement.
According to economist Azad Zangana; ‘If Draghi announces something quite big, we could see Sterling appreciate, and that lowers future inflation risk for the UK. That means there’s a greater chance of a delay in tightening.’
The prospect of a negative deposit rate and interest rate cut had been largely priced into the market.
As the ECB opted to cut the benchmark interest by less-than-anticipated the GBP/EUR exchange rate was largely unchanged by the decision.
Additional movement in the GBP/USD pairing will be the result of US initial jobless claims figures.
If the report confirms that first-time applications for unemployment benefits increased by 10,000 the Pound could come out on top.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6761,
Pound Sterling,,Euro,1.2317,
Pound Sterling,,Australian Dollar,1.8052,
Pound Sterling,,New Zealand Dollar,1.9884,
US Dollar,,Pound Sterling,0.5964,
Euro,,Pound Sterling,0.8118,
Australian Dollar,,Pound Sterling,0.5539,
New Zealand Dollar,,Pound Sterling,0.5033,
[/table]
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