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Pound Sterling exchange rate plunges as ‘soft patch’ of UK data prompts BoE to leave rates on hold

Philip McHugh May 11th 2018 - 2 minute read

The pound nosedived during yesterday’s trading session as markets reacted to the Bank of England’s (BoE) decision to leave interest rates on hold.

This morning sees Sterling holding close to the lows struck yesterday, with GBP/EUR flat at €1.1358 and GBP/USD muted at $1.3526, while GBP/CAD and GBP/NZD are steady at C$1.7253 and NZ$1.9392 respectively. Meanwhile the downtrend in GBP/AUD continues with the pairing falling to AU$1.7933.

Looking ahead the US dollar may be hit later this afternoon if the US consumer confidence index falls in line with expectations…

What’s been happening?

The pound plummeted against its peers on Thursday as Bank of England policymakers voted to leave interest rates unchanged at 0.5%.

The decision to leave rates on hold, while not unexpected, was a major blow to Sterling and was in sharp contrast to forecasts made a little under a month ago which suggested a May rate hike was almost guaranteed.

Also negatively impacting the pound yesterday was the BoE’s revision of its growth forecasts, with the slow start to the year leading the bank to lower its forecasts from 1.8% to 1.4% for 2018.

The GBP/EUR exchange rate tumbled by around a cent yesterday as the euro’s gains were extended by reports from Italy that the League party would not prioritise leaving the single currency if it were to form a government with the anti-establishment 5-Star Movement.

At the same time while the GBP/USD exchange rate slumped to a new four-month low on Thursday, the pairing’s losses were tempered somewhat by the release of the latest US CPI figures.

These figures revealed that US core inflation failed to rise in line with expectations in April, with markets concerned that, combined with some anaemic wage growth figures, this could see the US Dollar’s recent rally begin to unravel.

What’s coming up?

It’s set to be a quiet session in terms of UK economic data today, likely leaving GBP investors to remain focused on the Bank of England’s rate decision and growth forecast, with the Pound likely to continue to struggle if markets appear unconvinced by the BoE’s signals that a rate hike may still be possible later this year.

EUR investors are likely to focus their attention on a speech by Mario Draghi later today, with the European Central Bank (ECB) President potentially denting the euro if he expresses concern for the recent dip in the Eurozone inflation.

Meanwhile the release of the latest US consumer confidence figures could weaken the US Dollar this afternoon as economists forecast household sentiment will have continued to slide in May.

Written by
Philip McHugh

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