For the second time in a week GBP/USD exchange rates broke through the $1.68 barrier. Trading opened this morning with the currency pair sitting just above $1.6725 but that all changed following the latest UK unemployment numbers being released. Unemployment fell to 6.9% this morning, its lowest levels in nearly five years and the news had an immediate impact on the currency markets. Sterling's value rose across the board, pushing GBP/USD to a high of $1.6814.
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With UK unemployment now below the Bank of England's target rate of 7%, which was part of the central banks forward guidance policy that was issued last year, I am sure speculation will mount as to when the BoE will raise interest rates.
The BoE have always said the 7% target rate would not automatically trigger a rate hike but now that level has been reached it will be interesting to see how Mr Carney and the MPC members approach the subject.
How could this effect exchange rates?
A rise in interest rates will make the pound more attractive for investors, especially with the U.S and Eurozone base rate at 0.25%. With money flooding into the UK the pounds value could potentially rise, pushing Sterling up against the majority of its major counterparts.
So will rates break $1.70?
Potentially yes, any hints of a rate hike or a clear indication of when a rise will take place will add support to the UK and the pound. The U.S. dollar is showing little sign of clawing back any of the ground it has lost in recent months and the UK recovery seems to be back on track.
However, the Bank of England may not let the pound become that strong. The last thing they want is for UK exports to be affected by the rising cost of the pound. The central bank mentioned last week they were happy with where exchange rates were currently sitting but if rates continue to rise they will look to intervene.
As I have said the next couple of weeks are going to be very interesting and we could see rates move in either direct. A lot will depend on what course of action the BoE take but if you need to buy dollars in the coming weeks it is a fantastic time to do so. If you would like more information on the rates I can offer or the different ways you can buy currency, use the link below and complete the contact form or call me directly on 0044 (0) 1442 892 065.
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