Falling odds of UK rate hike send GBP lower

The pound had a bit of a rough ride on Tuesday as declining Bank of England (BoE) rate hike expectations and Brexit related warnings limited the British currency’s appeal.

GBP/EUR plummeted from €1.1338 to €1.1177, GBP/USD dropped from $1.2919 to $1.2816, GBP/AUD slid from AU$1.6973 to AU$1.6754 and GBP/NZD fell from a one-month high to NZ$1.7706.

Will things get better for the pound? Keep scrolling to find out...

What’s been happening?

Tuesday started promisingly as hopes that another Bank of England (BoE) official might join the chorus of those pushing for higher interest rates lent GBP exchange rates quiet support.

However, the hotly anticipated speech from BoE Deputy Governor Ben Broadbent ended up doing Sterling more harm than good.

The pound broadly weakened after Broadbent refrained from wading in on the rate debate and instead focused on trade and the potential damage that could be caused by a bad Brexit deal.

Broadbent stated; ‘a significant curtailment of trade with Europe would force the UK to shift away from producing the things it’s been relatively good at, and therefore tends to export to the EU, and towards the things it currently imports and is relatively less good at.’

Moody’s rating agency then added to the pound’s woes by stating that the UK’s credit rating could be at risk as a result of the current uncertainty surrounding the UK’s Brexit negotiations.

According to Moody’s; ‘The UK economy has started to slow, and Moody’s expects the UK economy to weaken significantly through the remainder of this year, with the baseline scenario seeing growth declining to 1.5% this year and 1.0% in 2018, compared to 1.8% in 2016.’

All-in-all, it wasn’t the best day for GBP exchange rates.

Broadbent piled further pressure on the pound early Wednesday morning as he decided to comment on interest rates a day later than expected. With the BoE official asserting that he’s not ready to raise interest rates, Sterling extended declines.

What's coming up?

In a week of fairly limited UK data, today’s employment numbers are offering up a little bit of excitement.

While the pound may benefit slightly if the number of employed persons improves, the nation’s wage stats are the figures everyone will be looking to.

With UK inflation rising, stagnant or falling wage growth would add to the pressure facing consumers and curtail growth prospects.

A poor set of wage numbers would therefore be pound-negative.

However, if average earnings are shown to have increased it could be a very different story, with an upbeat result having the potential to help the pound recover some of Tuesday’s losses.

Of course, we’ve also got the Bank of Canada (BOC) interest rate decision to look forward to. With bets for a rate hike currently sky high, the Canadian dollar may spiral lower if the central bank fails to deliver.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.