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Rising rate hike odds thanks to house price growth supports Pound

currency-newsRising rate hike odds thanks to house price growth supports Pound
A solid acceleration in the pace of house price growth during March suggested that the UK economy is strong enough to withstand another interest rate hike, boosting the pound yesterday.

The pound is holding onto some minor gains versus its safer peers today, but has recorded strong losses versus the commodity currencies. The GBP/EUR exchange rate has risen 0.1% to €1.1482, with GBP/USD having risen a similar amount to US$1.4145. The GBP/AUD exchange rate has slumped to -0.4% to AU$1.8289 and the GBP/NZD exchange rate by the same amount to NZ$1.9265, while the GBP/CAD exchange rate is holding just below opening levels at C$1.7947.

Read on to see why GBP/EUR was stuck around opening levels despite the improved monetary policy outlook…

What’s been happening?

Above-forecast house price data from Halifax gave the pound a boost yesterday after it suggested the UK economy could bear the brunt of another interest rate hike from the Bank of England (BoE).

Experts had only pencilled in a 0.1% month-on-month increase in property values during March, but house prices in fact increased 1.5%.

The housing market is considered to be one of the sectors most at risk from Brexit shocks, so a sharp rebound after a soft few months has raised hopes that the rest of the economy will also remain on solid form.

This could mean that the Bank of England will feel more comfortable in hiking interest rates during the May meeting, as markets expect.

Although the pound was on strong form elsewhere, the GBP/EUR exchange rate was stuck around opening levels as a weak US dollar propped up the euro.

USD weakness distracted from the latest disappointing Eurozone data, which revealed a smaller-than-expected German trade surplus thanks to a sharp slump in exports during February.

Additionally, European Central Bank (ECB) Vice President Vitor Constancio warned that the Governing Council should not rush to tighten monetary policy, instead taking its time in order to avoid derailing the recovery in inflation.

GBP/USD was able to climb sharply, with market fears over the potential for a global trade war ignited once again after US President Donald Trump criticised Chinese trade tariffs in a tweet, labelling the vast discrepancy between tariffs on imported Chinese cars to the US and imported US cars to China as ‘stupid’.

What’s coming up?

A speech from Bank of England Chief Economist Andy Haldane this morning could prompt a notable movement for the pound today.

Haldane is usually dovish when it comes to monetary policy, so he may make comments about the need for caution which would weigh on the pound; signs of confidence here instead would give Sterling a strong boost.

There is no Eurozone data set for release today, which could lead the GBP/EUR exchange rate to rise as markets focus on the long-term outlook for the euro and the recent data which suggests a softening in the currency bloc economy.

Federal Reserve official Robert Kaplan is due to give a speech today in Beijing, so markets will be watching closely for any hints regarding the path of monetary policy.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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