Today, the Bank of England announced that it has kept the interest rate at 0.5%. It also revealed that it will not yet be increasing QE from the current level of £375bn.
As Sterling typically responds to constancy, we expect to see a rise against many of the major currencies following the Bank of England’s decision to hold the current interest rate at 0.5%.
Yet more significantly for Sterling, the Bank of England revealed that it still has no plans to increase QE, which should provide the Pound with an extra boost in the short term. However, it is widely believed that further QE will have to be enforced before the end of the year, and given QE has been known to cause weakness to currency, Sterling’s strength could well be short lived.
Across the Channel European Central Bank President Mario Draghi said that the euro zone economy shows little sign of recovering before the year-end despite easing financial market conditions, he added that the ECB cannot do much more to help Greece with its debt burden and gave Spain none of the assurance it wants that ECB bond buying will lower its borrowing costs.
This blow to the debt ridden nations could cause uncertainty in the Eurozone and as such an increase in GBPEUR rates. We are currently not far short of the 4 year highs seen earlier this year and if you, like me, are not one to look a gift horse in the mouth, this might be the time to consider locking into exchange rates for the future using forward contracts.
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