The EUR has made significant gains against Sterling this afternoon, gaining over 2 cents at the high.
This improvement came despite the Bank of England (BoE) raising interest rates for the first time in over 10 years.
Today’s decision was pre-empted with much anticipation by investors, due to its potential impact on the markets.
However, my opinion has always been that the downside risk for those clients holding the Pound, certainly outweighed any the potential upside returns.
The EUR responded positively to the central bank’s decision to hike rates by 0.25%, which was in contrast to what the markets may have expected. GBP/EUR rates fell from 1.14 to 1.1183 and despite the Pound finding some support around 1.12, the EUR ended European trading hours in the ascendancy.
The reason for the EUR improvements is likely to be a combination of factors. The markets has clearly factored in a small hike by the BoE but it was the subsequent minutes which may have been prominent in Sterling’s downfall.
BoE governor Mark Carney was fairly downbeat and portrayed warning over any further rate rises whilst Brexit negotiations were on-going.
This combines with the negative perception surrounding the UK at present and the Pound was always likely to remain under pressure in the short-term.
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