The Bank of England opted to keep interest rates unchanged and maintain their current level of asset purchases at their March policy meeting.
Despite that the outcome was widely expected by the markets, the British Pound strengthened against the Euro and the U.S. dollar mainly due to a statement revealing the Bank to still be open to raising interest rates over coming months.
Experts from the financial news website Pound Sterling Live say the higher interest rates tend to strengthen a currency as investors around the world seek out higher yield on their investments.
“Unfortunately for Sterling UK money markets are unattractive as the Bank keeps a basic interest rate of 0.25 percent in place,” Pound Sterling Live stated this Friday.
The British Pound to Euro exchange rate rose to 1.1518 following the Bank of England statement, while it also rose against the Dollar to 1.2363. This was a slight increase compared to a day’s low of 1.2240.
Why the Pound is Stronger
“There was a distinctly more hawkish tilt to the minutes,” wrote Pound Sterling Live explaining that the Bank’s tone in the statement was less pessimistic than many experts had expected.
“Therefore, interest rate rises at the Bank must be expected over coming months — this is something Sterling will have liked to hear,” the website added. “Also adding to the pro-GBP tone was the fact that Kristin Forbes opted to vote for a rate hike, so it was not the whitewash 9-0 vote that many had expected.”
But, Credit Suisse analyst cast doubt on Pound Sterling’s ability to meaningfully build on the strength it has displayed against the Euro since March 12.
The Pound has since then moved up against the Euro making sure the EUR/GBP exchange rate edged lower to 0.8705 from multi-week highs just below 0.88 set at the start of the week, the financial news outlet added.
Foreign exchange expert David Sneddon, who works for Credit Suisse out of London, said that we shouldn’t expect a deeper decline in the EUR to GBP rate.