All eyes on the BoE this week
There is no doubt that this Thursday is one of the biggest events for Sterling in recent times. The market has priced in a 50bp rate hike with most economists believing this is the sensible path to take, after peak inflation looks to be behind us. However, traders and data analysts suggest this is a recipe for disaster and some are scaremongering 5%+ could be wiped off GBP's value.
For most of you reading this, Thursday is a real risk event, in fact the whole week is looking tough for the Pound. Before we get onto that, let's look at the horror show that occurred last week for Sterling. Major lows were felt on the back of another stock market crash (Tuesday saw the worst trading day since June 2020) and then one thing lead to another (new research showing why the BoE must raise rates aggressively, as well as awful UK retail sales data), causing £-€ rates to tumble to a near 20-month low and the £-$ to the lowest point since 1985.
So current levels are already very much unfavourable for Sterling sellers and if Thursday doesn't see a bigger hike than 50bp, it may well get catastrophic. It's not unreasonable to think that the Pound may be about to lose 2-5% of its value. On the flip side, there is a chance 1-3% can be gained if the BoE surprises and goes big. We will have some kind of an idea tomorrow when the Fed release their interest rate number.
There is pressure over in the US to remain credible and go along with the narrative that the Fed will continue to raise rates until inflation is under control. Many economists though want to see a slowing of hiking rates, for fear of raising rates too high too quick, will lead to a recession and higher unemployment. The decision and meeting afterwards will be the start of a 72-hour volatile period in the market, ending with the PMI's on a 'super Friday'.
A very problematic scenario for anyone with exchanges in the pipeline, as no-one knows for sure what happens next or by how much £ can move. Around 2% was wiped off the Pounds value last week, meaning on a £100,000-€ exchange, that's a loss of €2,300. For those of you on a tight budget and/or are risk averse, now would be the time to look at forward contracts or hedging. Contact us to find out how we can help reduce your risk on the market this week and beyond.