Thursday, 3 November 2016

Can the pound hold onto the gains?

Following the Bank of England announcements this afternoon the pound has continued to rise against the dollar, adding to the gains it made this morning following the High Court ruling. Just after the data was released the GBP/USD cross rose to a high of $1.2490, with the currency pair adding nearly two cents from its opening price.

GBP/USD graph

The UK central bank held interest rates at 0.25%, with all nine Monetary Policy Committee members voting to keep rates on hold, however, the Bank of England increased their inflation and growth forecasts for next year.

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Governor Carney stated the bank has increased its forecast for economic growth from 0.8% to 1.4%, although they have cut the 2018 prediction from 1.8% to 1.5%. The BoE said they see inflation rising to 2.7% next year, largely down to the fall in the price of Sterling.

Increasing the growth and inflation forecasts all but rules out the prospect of the Bank of England cutting interest rates again in the near future, and have helped bring a bit of stability back to the markets.

The questions now is can the pound hold onto the gains, or will the rise today be a temporary spike?

Personally I still don't think this is the start of the pounds recovery, although the UK economy received a boost from the Bank of England and investors feeling a little happier from the High Courts ruling, nothing has really changed.

I believe we could see GBP/USD below $1.20 before the end of year. There is still a chance the Federal Reserve could raise interest rates in December which would boost the value of the dollar, while the pound will come under an increased amount of pressure in the build up to the government triggering Article 50.

In my opinion, if you are looking at purchasing dollars it could be worth taking advantage of the recent spike.

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