Currency Exchange – The UK CaseApril 16, 2014
A couple of hours ago we saw the unemployment in the UK. Impressive result for the economy and the currency exchange rate.
The new number is 6.9%. It should mark the beginning of a new era for England. Because of it, market participants will start looking for a rate increase.
However, the reality is usually different. Any talks about a possible rate hike in the near future are simply gobbledygook.
What Next for the Currency Exchange Rate?
Similar to the Federal Reserve (FED), Bank of England (BOE) considers an unemployment threshold. Namely, 7% to consider raising the rates.
And, like the FED backed away from it, so did Bank of England. Moreover, in February 2014, Mark Carney, BOE's Governor, gave a press conference concerning inflation.
He outlined many conditions to be met before any changes in the official rate. In addition, he stressed that the rates may stay at low levels for some time to come.
That being said only two months ago, the market participants should keep their cool. The currency exchange rates on the GBP won't move much in the near future.
Furthermore, he mentioned spare capacity gap that also supports the idea that the rate hike is improbable. And, this suggests that nothing will change in BOEs policy anytime soon.
The currency exchange rate in GBPUSD is quite high. And that doesn't help the current situation.
Many traders sold it. But the pair keeps going higher.
If a rate hike should occur now, it would send the pound to the moon against the USD and any other major currency. That's the risk BOE faces.
Capital Properties FX
April 16, 2014