Last week was going very well until UK data releases starting to show holes in the UK economy, if you read my previous article you would know we were already expecting lower retail sales figures due to the snow, and if inflation came out lower we were also expecting the Pound to ease off- these things both happened but BoE Governor, Mark Carney also delivered a blow to the Pound by stating that an interest rate hike may not happen next month. The Pound has been strengthening as speculators have been betting on the fact that rates would go up in the UK, and now the chances are down to 50/50- the Pound lost around 2% across the board on Friday morning following these comments.
So will the Bank of England put interest rates up next month? In my opinion, they shouldn’t- inflation is already coming down by itself and wages are slowly rising in the UK, I feel a hike could damage the economy instead of helping it. However, just because I feel it’s not right, doesn’t mean it won’t happen- the Bank of England still seem pretty bullish about a hike which means we still could see it happen. The reality is, the Pound has strengthened a lot recently, and a comment like that has weakened it back off so if we do raise rates, the exchange rate will just hit last week’s highs again instead of skyrocketing- unfortunately, the reality is that you see this sort of control over exchange rates all of the time.
This week we have plenty of economic figures coming out of Europe & the U.S which may give us an idea as to how the rates will move- on Monday morning we are expected to see German and Eurozone manufacturing & services figures- both of which are expected weaker than previous- if we see this come out as expected we could see the Euro weaken which may provide some positive buying opportunities on GBPEUR. However, it’s important to note if see it come out better than expected, then GBPEUR rates will probably fall relatively quickly.
Thursday is set to be the most important day this week as the ECB will have their interest rate decision- no change is expected but all eyes will be on Mario Draghi’s press conference following the meeting to get an insight on how the economy is doing and if they will be doing a rate hike in 2018, if he mentions anything about cutting out QE or a rate hike this will be very positive for the Euro.
On Friday, BoE Governor Mark Carney will be speaking again, and following his comments from last week I am sure he will be questioned to elaborate on what he said about interest rates, as we know, any talk about a rate hike in May is bullish for the Pound, and if he says the opposite, then I expect the Pound to fall sharply.