Tuesday 24th June 2014
The Pound has fallen against other currencies this morning after the Bank of England chief Mark Carney was quizzed by MP’s over their recent inflation report and comments on interest rates.
When being quizzed this morning he cast doubts on when interest rates may rise. In recent weeks he made comments that the market took as a sign rates would be on the way up later this year, which gave the Pound some strength and pushed exchange rates up to multi-year highs.
So what did he say and why has the Pound fallen?
The exact timing of a hike is now in doubt however. He said that any increases in interest rates would be driven by economic data, and that the most important aspect of the guidance they’re giving is that any increases in the rate when they come, will be limited and gradual.
He also said that the Pound’s strength could be a worry. “On the export side where the data is a bit choppy ... there are still reasonable challenges there given the weakness of demand abroad and the strength of sterling, the recent strength of sterling which has not yet been supported by improvements in productivity and competitiveness.” He had previously warned that a strong Pound is not good for exports.
One MP accused the governor of being like an unreliable boyfriend, blowing hot and cold in his hints over interest rates, and this is reflected in the up and down volatility of Sterling presently.
As you can see from the chart below, the Pound fell after his comments, falling from 1.2530 to 1.2460 against the Euro, and dipping below $1.70 against the Dollar. So it seems the recent highs were a short lived spike and the market has now corrected slightly.
So what might happen next with exchange rates? Up or down?
We are now below the key technical levels that Sterling recently broke: €1.25 against the Euro and $1.70 vs the US Dollar. Given today’s comments, it’s likely the market will be very volatile as data releases indicate how the economy is performing, and the markets try to gauge what this means for the Pound.
For those converting currency back to Pounds, then the spike today is a slight move in your favour that is worth considering taking advantage of. I think medium to long term the Pound will continue to remain strong.
For those with Pounds to convert to another currency, the short term outlook is very hard to predict. Exchange rates are still very attractive, so you could fix a rate now to protect against it dropping further, or place a Stop Loss order to limit any losses should the market drop away, while still being able to take advantage of a recovery.
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Labels: Best Exchange Rates, Currency, Interest Rates, Mark Carney, Pound/Euro, Sterling