GBP Currency Analysis
Currency Sentiment - Mixed on Brexit
The Bank of England hiked interest rates on August 2nd 2018 for only the second time in 10 years since the 2008 financial crash. The Bank is hiking rates in response to above-target inflation which is less to do with high spending in a booming UK economy, and more to do with the side effects of the devaluation of the pound after the Brexit referendum which caused import prices to skyrocket In the UK. After the Brexit referendum in June 2016, the pound lost 20% of its value when exchanged into international currencies. This caused import prices to skyrocket as UK business found themselves having to pay 20% more for the same goods and services imported into the UK before the referendum. With businesses wanting to keep their profit margins, they raised prices on the shop floor which sparked rapid inflation. Within 12 months inflation shot up from 0.7% to 3.1%.
The BoE decided to raise interest rates in August as record unemployment in the UK, currently at 4.2% is expected to put upward pressure on wages and public spending. The BoE is already trying to deal with above-target inflation caused by Brexit and for this reason the bank said it would be appropriate to raise rates now to control inflation in the next 12 - 18 months overshooting their 2% target.
Brexit remains the key topic which is set to dictate the value of the pound in the FX markets. The possibility of a hard Brexit alongside the in-house fighting within the British government is making investors nervous about the UK crashing out of the EU without a deal of trade.
Market analysts / economists expect the pound to skyrocket in value if a trade agreement is reached between the UK and the EU. However, if there is a hard Brexit and no trade agreement can be reached analyst / Economists predict the pound to plummet by over 20% across the markets as the UK economy will suffer in response to the UK’s high tariffs access into the Eurozone economy