The Pound Sterling exchange rate fell across the board on Thursday after the Bank of England (BoE) decided to raise rates from 0.50% to 0.75%. The Pound to Euro (GBP/EUR) and Pound to US Dollar (GBP/USD) exchange rates sank as markets expected a delay between an additional interest rate increase.
Can BoE Justify Interest Rate Hike with Brexit Developments?
There have been plenty of speculation in recent months about whether the central bank would be able to hike interest rates, and some suggested that August was the last opportunity for the Bank to hike amid Brexit deadlines and negotiations.
Industry expert Charles Hepworth commented:
‘Growth in the economy could hardly be described as above-trend so members may have realised that this could be the last chance to move ahead before reaching the final Brexit end state. In any case the Bank of England’s response in a few months’ time could look very different should the Brexit cliff edge slip nearer despite them saying more hikes will be needed. The currency markets aren’t totally buying the hawkish message otherwise the Pound would be rising, which it most certainly isn’t.’
It seems not everyone is in agreement that the BoE could justify a rate hike. law firm director Ed Hall commented:
‘Given that a quarter point rise is perceived to have a limited long-term impact on most business, the move would seem to make sense in terms of longer term strategy. However, in a period of increasing political and economic uncertainity, it can be argued that this move could damage confidence in what could be perceived as an already fragile economy.’
Pound to US Dollar (GBP/USD), and Pound to Euro (GBP/EUR) Exchange Rates Fall after BoE Hike
In response, the Pound to US Dollar (GBP/USD) exchange rate fell to two-week lows of 1.3015. Meanwhile, the Sterling to Euro (GBP/EUR) exchange rate hit 1.1204.
Yesterday, the UK manufacturing sector took a slight downturn the latest Markit Manufacturing Purchasing Managers’ Index (PMI) slipped from 54.3 to 54.0. Meanwhile, today’s Construction PMI hit a 14-month high in July, climbing from 53.1 to 55.8. Tomorrow will see the release of Markit’s Services PMI and Composite PMI.
The Pound to US Dollar (GBP/USD) exchange rate is trading at 1.3037. The Pound to Euro (GBP/EUR) exchange rate is trending in the region of 1.1225 .