For many investors the outcome was too close to call, and therefore offered potential heightened currency volatility. Foreign exchange markets had attributed a 50/50 chance of an interest rate cut, leaving the pound with a burden of uncertainty in the run up to the decision. It also meant it traded with a softer tone over the recent days.
Sterling gained on the euro and US dollar following the midday decision to leave interest rates unchanged at 0.75 per cent. Voting 7-2 in favour of holding rates, dampened the previous fears in the week that the committee deemed a rate cut necessary in the early 2020, especially with the UK leaving the EU on 31st January. The committee members have been split on votes since November 2019.
While a cut today had been expected all month long, recent positive economic data was clearly enough to convince the Bank of England to start 2020 with a more optimistic stance. In Mark Carney’s final interest rate meeting before he leave the central bank, it appears policymakers see an improving pictures ahead for the UK economy following Prime Minister Boris Johnson’s winter election victory providing some certainty to the political landscape.
The general rule of thumb in the world of currencies is if a central bank cuts interest rates, the currency would fall in value. Markets had sold sterling with the odds of a rate cut increasing throughout January. Therefore, the currency recovered with the bank holding firm on the rates.
However, the Bank of England has also warned that any Brexit related uncertainty could potentially harm the UK’s future prospects for the year.
Whether or not you have been closely following the Bank of England interest rate announcement, you can rely on a currency exchange expert, like moneycorp, to help you manage your payments internationally. Currency markets are unpredictable, but our team of dedicated foreign exchange specialist can help you navigate the market with ease.
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Adam Jordan: Senior Private Client Dealer at moneycorp. I joined moneycorp in 2004 and have more than 15 years’ experience in the foreign exchange market, primarily providing support and guidance for a large portfolio of private clients. I have developed long-term relationships with a significant number high net-worth clients, helping them manage their foreign exchange risk on a daily basis with expert guidance and market commentary.