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7th May 2024 | Sterling may prove…

Today’s Headlines:

  • Bank of England Decision: This week’s decision on interest rates by the Bank of England is pivotal for FX markets, particularly affecting the pound.
  • Interest Rate Expectations: The possibility of a UK rate reduction is a major theme in 2024, with projections shifting to potential cuts in June, August, or September.
  • US keeps interest rates on hold: The most recent US interest rate decision sees rates on hold with a possible hike unlikely.

In Depth: This Week’s Market Update

This week marks the latest Bank of England interest rate decision, a pivotal moment in the FX markets for the pound. The adjustment of interest rates stands as one of the primary catalysts for FX market fluctuations. Typically, a decrease in interest rates will weaken the respective currency, while an increase will, in theory, strengthen it.

One of the central themes dominating currency markets in 2024 is the possibility of an interest rate reduction. Initially, at the onset of the year, markets anticipated this week’s meeting to signal the first cut. However, heightened inflation figures for the UK have diminished this likelihood, with a potential cut in June or August now under intense debate, although the initial cut isn’t entirely projected until September.

Are you contemplating purchasing or selling sterling in the coming days, weeks, or months? Although no alteration is anticipated in the actual UK interest rate this week, the Bank of England’s path toward its inaugural cut in four years could incite volatility in sterling exchange rates. Market participants will scrutinise any shifts in voting tendencies among Bank of England members, in addition to closely monitoring a speech by Andrew Bailey, Governor of the Bank of England, following the decision.

The week brings other significant releases, including UK economic growth figures and the latest US consumer sentiment index data. While the US dollar has softened from its recent peaks, it continues to trade strongly against the Euro and sterling. During its most recent interest rate decision meeting, the US Federal Reserve maintained its interest rate, acknowledging the likelihood of a prolonged path to lower inflation and stating that the next move is unlikely to be a hike, as some had anticipated.

The trajectory toward the first interest rate cut for the UK, US, and Eurozone remains turbulent, characterised by ongoing shifts in expectations that result in a lack of sustained direction for some of these currency pairs. For a more comprehensive discussion on the factors driving and potentially influencing your exchange rate in the future, please consult your Lumon account manager. We offer a variety of tools to mitigate your exposure to the uncertain FX markets, ensuring that your currency transactions never exceed your budget and enabling you to make well-informed decisions.