Pound to fall as rates stay on hold

With all the uncertainty surrounding the UK at the moment such as political instability as well as the current Brexit negotiations that seem to be dragging on forever, many are starting to wonder just how is the British pound holding up in the face of such problems.

A challenge to British Prime Minister Theresa Mays leadership is possible over the next 2 weeks as her own party revolt over her handling of Brexit which the Pound sterling has seemed to have brushed off but the next big round of news may be just too much for the British currency to handle.

The news is the growing expectations that the Bank of England will raise interest rates next month which is currently factored into the pound and may be the reason it has managed to remain above $1.30.

One analyst believes that the market has got it all wrong and with all the factors mentioned above as well as many others, the BOE will have no choice but to leave rates on hold out of fear of derailing the economy even further and the first rate hike may not come until 2020.

If the central bank does leave rates on hold next month the pound sterling is bound to take a big hit.

"The market thinks the Bank of England will hike once this year and once next year. We think that is wrong. In this uncertain environment with potentially a fall in the government, we don't think the Bank of England can hike rates." Said Alberto Gallo, a portfolio manager at Algebris Investments

"We think the Bank of England could go on hold rather like the European Central Bank has done, rather than continuing to hike one or two times over the next two years," he says. He added.

The short term focus for the pound will be a speech later today by Bank of England Governor Mark Carney where he will lay out the case for monetary policy moving forward.

 


Analyst

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