THE IMPACT OF BANK OF ENGLAND INTEREST RATE DECISION ON CURRENCY FLUCTUATION

Following its November policy meeting, the Bank of England's Monetary Policy Committee (MPC) chose to maintain the benchmark interest rate at 0.1 per cent. Even though this decision was in line with market expectations, market pricing indicated a 50% possibility of a rate rise of 15 basis points. Following the first market reaction, the British pound came under heavy selling pressure, and the GBP/USD pair was last spotted at 1.3580, down 0.75 per cent on the day.

Before the policy meeting, which took place last Thursday, reports showed that UK services dropped at the quickest pace in seven years. Sterling lost part of Tuesday's gains against the dollar, which were the worst in three weeks. It fueled anticipation that the Bank of England would loosen monetary policy to avoid a recession. In a Bloomberg poll, all but two experts projected the first-rate drop since March 2009.

However, Investors and analysts were surprised when the Bank of England decided to keep interest rates at 0.1 per cent for at least another month. After the Monetary Policy Committee (MPC) decided unanimously to preserve rates at their present record-low but above-zero levels, the Bank of England (BoE) reiterated this week that it is unlikely to impose negative interest rates soon. As a result of the news, the Sterling gained ground against the euro, the dollar, and other major currencies.

The pound plummeted more than 1% this week as markets reacted to the Bank of England's surprise decision not to hike interest rates. The pound dropped as low as 0.5% against the US dollar on Friday before recouping some losses. Since last Friday, the currency has lost almost 1.5 per cent, the most since August. Many investors were caught unaware by the Bank of England decision not to raise its benchmark interest rate on Thursday. Markets anticipated a 0.25 per cent hike in the Central Bank's primary interest rate, which was at 0.1 per cent.

There was a mirrored increase in the pound's rise by the rise in UK government debt as investors soon reduced their expectations on rate hikes. In contrast to investors' expectations of the Bank's nine-member monetary policy committee (MPC) to raise the Bank rate to 0.25 per cent this month, the decision pulled the pound down two cents against the US dollar to less than $1.35. In stock markets, lenders Natwest, Lloyds, and Barclays - whose profitability is bolstered by higher rates - saw their shares tumble by 4% or more. At the same time, sterling plummeted by a penny against the euro below €1.17.

To get the best currency exchange in London/Victoria, it is always a good idea to prepare ahead. Keep an eye on exchange rates in the weeks running up to your departure date so you don't have to buy euros or buy dollars in a hurry just before you go, but you may do it while prices are at a reasonable level. For example, the Euro exchange rate has been fluctuating recently, so it is crucial to watch it before selecting whether to buy Euros. Foreign exchange rates might also change during the day.

Victoria Street FX provides the best exchange rates in London/Victoria for all major currencies, and we sell euros and sell dollars at the best rate to clients who register with us. We have a large customer base, which includes visitors from all over the world and retail and business clients in the United Kingdom.