Today at midday the Bank of England will release their latest interest rate decision and the market is predicting a hike of 0.25. When a central bank raises interest rates the trend is for that currency to strengthen, therefore buying euros could become cheaper. However it’s not that simple. The market has already priced in a hike as investors would have purchased their positions in advance.
It’s the press conference by Mark Carney 30 minutes after the interest rate decision that has the potential to have a major impact on the value of sterling. Quite simply, if he hints further hikes are on the horizon, I would expect GBPEUR to increase, where as a dovish statement could see GBPEUR fall to the 1.10 territory. In addition a no hike which looks unlikely at this stage would put serious pressure on the value of the pound.
My prediction is that the Bank of England will hike, however the press conference will be fairly neutral and therefore GBPEUR will remain range bound between 1.11 and 1.13.
In other news, the Europeans offer to extend Article50 is extremely interesting. The EU have stated Article50 could be pushed back if there was a certain reason that could have an impact on the final agreement and many organisations are predicting that the EU are hinting that they will extend Article50 if it would mean the UK would hold an early General Election. It’s extremely unlikely that the UK Prime Minister will agree to the extension of Article50, however at present she is running out of options and a no-deal I don’t believe is an option.
For clients buying property in Europe short term with sterling, there is a strong argument to either trade before or after the Bank of England’s decision and not take any more risks. The closely we get to the UK and EU Brexit deadline day, I expect the pound will continue to fall making buying property abroad more expensive.
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