BOE unanimous vote for 25 BP hike
As was widely expected, the Bank of England Monetary Policy Committee voted 9-0 to raise the UK base rate by 25 basis points to 1%. there was much excitement in the press over this being a 13 year high for the base rate circumstances have conspired over the last two decades to keep the UK base rate – and global interest rates for that matter – at record lows. It seems, the fact that there were no voters seeking a larger interest rate hike at this juncture and the lack of hawkishness in the banks statement, gave sterling traders a reason to sell the pound. So, in the blink of an eye, the GBPUSD rate is back down to $1.2315; a level last seen in May 2020. We know this is a GBP story because the GBPEUR rate is also sharply lower at EUR 1.1710 and the last time we saw that was December 2021. This is very exciting news for those moving funds to the UK but poor form if you need to sell the pound for almost any other currency. Sterling did find some support in this morning’s Halifax house price index which showed a 1.8% annual house price rise; much stronger than forecast..
Multiple factors boosting US Dollar
Where the Bank of England was pretty dovish, the US Federal Reserve is quite hawkish. Other central banks are less so. That boosts the value of the US bond market and sucks in overseas investors’ cash. That, plus nervousness about Ukraine, elevated commodity prices and strong inflation combine to strengthen the USD and weaken other currencies. That is the briefest synopsis of where we are this fine Friday morning. The EURUSD rate is pushing through $1.05 at the time of writing. It has been supported here before but we can’t be certain we won’t see fresh 20+ year lows in this pair. Today’s US employment report may have a bearing on that. There is a good change the US unemployment rate will fall to 3.5% or even a tad lower. We haven’t seen that since early 2020, so it could cause the Fed to become even more hawkish. US buyers please beware.
GBPCAD lowest in 9 years
The other currency that moved strongly against the Pound yesterday was the Canadian Dollar. The GBPCAD rate dropped to CAD 1.58 overnight and is only 0.25 of a cent higher at the time of writing. This is the strongest the CAD has been against the Pound since 2013; fantastic news for CAD sellers but CAD buyers will be hoping there are enough GBP buyers to support this pair. One word of warning is that between 2010 and 2013 this pair dropped to CAD 1.5170 or thereabouts before it managed to rally.