With Brexit just hours away, the pound is on the march — but it’s not down to optimism about the UK leaving the EU.
Sterling was up 0.4% against the euro (GBPEUR=X) to €1.1912 and up 0.3% against the dollar (GBPUSD=X) to $1.3136 by 9.15am UK. The rise comes just under 14 hours before Britain is due to leave the European Union, at 11pm on 31 January.
However, analysts said the rise was driven less by Brexit than by the Bank of England. The central bank said Thursday it would hold interest rates unchanged at 0.75%, confounding the expectations of some investors that rates would be cut.
The lack of a rate cut set to pound rising on Thursday afternoon and the momentum has continued into Friday morning.
“It surprised traders and bulls took charge,” said Naeem Aslam, chief market analyst at Avatrade. “The currency is still holding its ground.”
The rise came despite the Bank of England downgrading growth forecasts to the lowest level since the second world war. The central bank expects the UK economy to grow by just 0.8% this year.
Conor Beakey, an economist at AIB, said markets were responding to the wording of the Bank’s interest decision, which was more positive than traders had expected.
“Prior to the meeting, futures contracts suggested a rate cut would be a 50:50 decision,” Beaky said. “More generally, the tone of the meeting was less dovish than had been anticipated.
“Only 2 Monetary Policy Committee members voted for a cut. At the same time, the central bank acknowledged that downside risks have receded somewhat. As a result, UK swap rates edged higher, though the market is still looking for 25 basis points of easing by year end.”
Elsewhere in currency markets, the euro was flat against the dollar (EURUSD=X) ahead of eurozone GDP numbers later this morning.