The Pound sank against the US Dollar (GBP/USD) and Euro (GBP/EUR) on Friday as UK data threatened Gross Domestic PRoduct (GDP) growth. Friday saw UK Industrial Production slip in December on the year, to reside at 0.0% following the previous 2.6% reading. Manufacturing production also fell, coming in at 1.4% on the year down from the previous 3.8%. Additionally, the UK’s goods trade deficit climbed to the highest level in 15 months at £13.6 billion.
The Bank of England (BoE) gave the Pound exchange rate some buoyancy this week when it hinted that UK interest rates would likely rise quicker than markets are expecting.
The central bank’s latest communication read:
‘Were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report.’
The Pound to Euro (GBP/EUR) and Pound to US Dollar (GBP/USD) exchange rates soared by over 1.0% in Thursday’s session and continued to trend higher in Friday’s early trading. On Thursday, Sterling broke through the 1.40 key psychological barrier versus the Greenback after a recent fall below; in recent weeks the GBP/USD exchange rate had been as high as 1.43.
On Friday, Bank of England Deputy Governor Ben Broadbent said that a few interest rate rises in the year ahead shouldn’t come as a great shock. Broadbent suggested that low interest rates had been accredited to global factors. He said:
‘But nor do I think if there were to be a couple of 25 basis point rises in a year, that that would somehow be a great shock.’
However, he was careful to caveat his opinion suggesting that no solid plans were in place. He continued:
‘We do not fix the path of interest rates in advance. What is fixed is our remit and rates change with the economy.’
If the central bank looks to begin hiking interest rate (investors are forecasting the possibility of a hike in May and another November) then the Pound could experience some serious gains. If policymakers are split in their Monetary Policy Committee (MPC) votes that could be an indication that higher rates would soon be passed on to borrowers and businesses.
The Pound to US Dollar (GBP/USD) exchange rate is currently trending at 1.3887. The Pound to Euro (GBP/EUR) exchange rate is trading at 1.1390.