There’s been a lot of surprises in the political world recently, and this week has certainly continued that trend. As a result, we’ve seen numerous fluctuations in the value of the Pound as the markets react to each new headline. We recently looked at what events to look out for that could impact the Pound, two of which have now happened: Theresa May’s appointment as Prime Minister and the Bank of England’s decision to hold interest rates at 0.5%.
Neither of these events happened quite as had generally been predicted and they both have provided an unexpected boost to the value of the Pound. This has helped it to start recovering from the significant losses experienced on the day the referendum results were announced, although it is still a long way away from some of the highs experienced before the referendum.
We’ve taken a look at what this has meant for the Pound and what might impact the markets next.
Surprise announcement in the Conservative leadership battle
After David Cameron announced he was planning to resign, there were a number of Conservative politicians who were expected to put themselves forward to replace him. It seemed like there could be a lengthy battle that would not be resolved until September. However, there have been several unexpected turns since then, including Boris Johnson’s announcement that he would not be running and Michael Gove’s announcement that he would be.
But the biggest surprise came on Monday, when Andrea Leadsom decided to drop out of the competition, meaning that the campaign was resolved earlier than anyone could have expected. This announcement caused an immediate rise in the Pound, as the markets were grateful for this sudden removal of uncertainty and perhaps perceived the experienced Theresa May to be a safer pair of hands.
Surprise announcement from the Bank of England
It had generally been expected that the Bank of England would cut interest rates in reaction to Brexit and the predicted economic ramifications. Instead, they have erred on the side of caution by deciding to leave interest rates on hold at 0.5%.
The members have stated that they expect economic activity to slow. However, it appears they would like to see more post-Brexit economic data in order to confirm this before they decide to take any action. It seems that there was an overall consensus for this approach, with eight members voting to leave rates on hold and only one voting for a rate cut to 0.25%.
The next Bank of England meeting is in August, which fits in with the quarterly inflation report, allowing the members a little more time to come to an informed decision.
The Pound rose over 2% against the Dollar following the news, but it is unclear how long this trend will continue considering it is still a strong possibility that rates could be cut in August.
What’s next for the Pound?
As recent events have shown, it is impossible to tell what will happen next in the current political climate. However, there are currently no other significant events on the immediate horizon, so it might be expected that after this week’s rise we could start to see some stabilisation for the Pound in the short term.
The next major pieces of news to look out for are:
- Late July: more economic data will start to become available to show how the UK has been affected by the Brexit vote.
- 4th August: the next meeting of the Bank of England’s Monetary Policy Committee, when they could still decide to cut interest rates.
- 5th September: a Parliamentary debate has been scheduled to discuss a second EU referendum. It is unclear how this could impact the timescale of Brexit negotiations, but any interim announcements may influence the value of the Pound.
Whatever happens next, we’ll continue to keep you updated here. And if you are planning your international money transfers and you’d like to discuss your situation in more detail, please contact us.
You can view all our Brexit resources here.
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