For the first time in more than 10 years the Bank of England has raised interest rates.
Bank of England governor Mark Carney held a press conference yesterday, also detailing it is likely to rise twice more over the next three years.
The rate has been lifted from 0.25 per cent to 0.5 per cent, which is the first increase since July 2007.
But the raise has had a negative impact on pound sterling against the euro.
Yesterday around 1pm, shortly following the Bank of England’s decision, the pound was converting to €1.1253.
This morning, the pound has sunk to €1.1202.
Laura Parsons, currency analyst at TorFx said: “The pound had a shocker of a Thursday, despite the Bank of England (BoE) finally raising interest rates for the first time in over a decade.
“Sterling lost almost 2 per cent against most the majors as the BoE signalled that interest rates wouldn’t be increased again anytime soon, with GBP/EUR dropping from highs of €1.140 to lows of €1.118.”
But Laura predict the pound may be able to recoup some of its losses if the UK’s services PMI for October impresses.
She added: “However, as it stands, the measure of service sector output is expected to slip from 53.6 to 53.3.
“With the future for UK interest rates looking fairly unexciting, Sterling may struggle to return to its recent multi-month highs.”
Simon Phillips, retail director at No1 Currency, also reacted to the interest rate hike and explained the surprising results.
He said: “Rates rise and Sterling sinks – Sterling has been on the up all week as the currency markets anticipated today’s rate rise, but it has dropped off a cliff after the immediate announcement today.
“This is unexpected because usually higher UK interest rates mean a greater demand for sterling from foreign investors – which typically drives up the value of the Pound.
“But although there was a rise the Bank reverted to a very dovish position.
“In fact, the Bank has altogether dropped its line that interest rates may rise more quickly than markets currently expect and reverted back to saying rises will be gradual and limited.
“That suggests there won’t be another rate rise until this time next year at the earliest.
“The Eurozone’s economy is growing significantly faster than Britain’s, which also adds to the poor exchange rates against the Euro.
“Sterling has been through swings and roundabouts and more uncertainty lies ahead.
“Those planning on taking a well-deserved Christmas trip to the Eurozone must be savvy and shop around to make sure they get the best currency deal and minimise the affect of the current foreign exchange markets.”
