GBP records gains over 1% versus majors on confident BoE rate outlook

The Bank of England (BoE) yesterday stated that it may need to raise interest rates at a faster-than-expected pace, flinging the pound higher versus its major peers.

The pound continues to register strong gains today. GBP/EUR is up 0.2% to €1.1384, while GBP/USD is up 0.3% to US$1.3983. GBP/AUD is also at 0.3% to AU$1.7944, GBP/NZD is up 0.4% to NZ$1.9364, and GBP/CAD is up 0.4% as well to C$1.7605.

Read on to see exactly what the Monetary Policy Committee said that got markets excited…

What’s been happening?

GBP/EUR and GBP/USD exchange rates were recording gains of around 1.1% yesterday after the latest Bank of England announcements.

Pound Sterling climbed well over one percentage point versus dozens of its currency peers yesterday, after the Monetary Policy Committee meeting minutes suggested that interest rates may need to be increased at a faster pace than the BoE had anticipated in its projections three months ago.

This lit a fire under the pound, despite the fact that the latest monetary policy decision was unanimous in keeping interest rates frozen at 0.50%.

The Eurozone was on solid form elsewhere, failing to register particularly impressive gains but also avoiding being pushed into negative territory versus some of its peers.

This was despite the latest European Central Bank (ECB) Economic Bulletin, which continued the trend of predicting strong economic growth but with no satisfactory uptick in inflation over the coming months.

This did nothing to boost the monetary policy outlook for the currency bloc.

Strong demand for the pound had undermined the US dollar to some extent yesterday; while not as stable an asset as the US dollar, markets were attracted to switch over to Sterling by GBP’s greater potential for appreciation.

The US dollar received some support overnight when Federal Reserve official William Dudley, a voting member of the Federal Open Market Committee (FOMC), stated that he sees no reason why the Fed should not hike interest rates in March assuming economic data remains firm.

What's coming up?

A slew of UK data including industrial and manufacturing production and trade figures for December, as well as the National Institute of Economic and Social Research (NIESR) GDP estimate for January, will provide plenty of fresh meat for investors to sink their teeth into.

Considering the Bank of England has just signalled that it may need to tighten borrowing costs at a faster-than-expected pace, a strong run of data here could push the pound significantly higher; however, forecasts suggest that it will be a disappointing docket as far as production is concerned.

There is nothing particularly impactful coming up on the US data calendar today, while the Eurozone calendar is completely empty.

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.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.