Rise For the Pound as Bank Bosses Boost Interest Rates

Jacob Friedman

The pound saw a rise in its fortunes on Thursday after the UK’s central bank decided to boost interest rates in a significant move.

The Bank of England (BoE) put interest rates up from 0.5% to 0.75%, a level which was last reached in March of 2009.

Increases for sterling weren’t huge, but they did represent growth on the day before. They moved to $1.3129 against the dollar, which was a rise from its previous position of $1.3081. The GBP/EUR pair moved to 88.62 pence, its peak point for a period of almost two weeks.

The modest level of the rises may have in part been a consequence of the wider, unclear context in which the decision was made.

A note of caution was sounded by the BoE, especially with regards to Brexit.

However, the Bank’s Governor Mark Carney said in an interview with the major broadcaster the BBC, that the committee retained the flexibility to make changes if required.

“There are a variety of scenarios that can happen with Brexit… but in many of those scenarios interest rates should be at least at these levels and so this decision is consistent with that,” Carney said.

“In those scenarios where the interest rate should be lower, well, then the MPC which meets eight times a year would, I’m confident, take the right decision to adjust interest rates at that time,” he added.

The Bank’s decision caps a week of significant monetary policy meetings around the world, including the Bank of Japan’s announcement on Tuesday and the US Federal Reserve’s on Wednesday.

Both of those institutions kept interest rates as they are, although the latter revealed a positive outlook for the American economy, giving further fuel to strong speculation that rate rises will be on the cards for the next two quarters of 2018.

Next Tuesday, the Reserve Bank of Australia will make its interest rate decision. Rates in Australia currently sit at 1.5%, although the outcome of the meeting is uncertain.

Other significant events in the foreign exchange calendar are on the cards for next week.

Monday will see like-for-like retail sales figures released in Britain covering July, while a Canadian civic holiday may keep CAD pairs looking somewhat sluggish.

Tuesday will see a number of major German statistical releases, including June’s exports, industrial production levels and trade balance. France will also release its June current account information on Tuesday, while the US Redbook index will be released as well.

The ongoing tariff issues between China and the US will be brought into sharp focus again on Wednesday with a series of major Chinese data releases.

The Asian nation will release July figures on imports and exports, which will be closely watched by investors. It will also reveal its trade balance. In Australia, meanwhile, the Reserve Bank’s Governor Philip Lowe will give a speech on Wednesday, no doubt following up on the decision from the previous day.

Finally, later on Wednesday, the Reserve Bank of New Zealand will release its rate decision. Rates there currently sit at 1.75%.

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Jacob Friedman
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