What are the factors that affect the movement of the pound?
Ministry of Finance. Its function of formulating monetary policy has gradually weakened since 1997, but the Ministry of Finance still sets inflation targets for the BoE and decides the appointment and removal of key BoE personnel.
Sterling ‘s relationship with the European Economic and Monetary Union: Sterling has often been hit by Prime Minister Tony Blair ‘s remarks about the possibility of joining Europe’s single currency, the euro . If the UK wants to join the euro zone, the UK interest rate level must be lowered to the euro rate level. If the public votes to join the euro zone, the pound must depreciate against the euro for the sake of the country’s industrial trade. Therefore, any talk of the UK’s possible entry into the euro zone will weigh on the pound .
Bank of England ( BoE ): Bank of England . Since 1997, the BoE has acquired the function of independently formulating monetary policy. The government uses the inflation target as the standard for price stability, generally measured by the Retail Prices Index excluding mortgages (RPI-X), and the annual increase is controlled below 2.5%. Therefore, although monetary policy is set independently of the government department, the BoE is still subject to inflation standards set by the Ministry of Finance.
Monetary Policy Committee (MPC): The Monetary Policy Committee. This committee is primarily responsible for setting interest rate levels.
Interest Rates: Interest rates. The central bank ‘s main interest rate is the minimum lending rate (the base rate). In the first week of each month, the central bank uses interest rate adjustments to send a clear monetary policy signal to the market. Changes in interest rates usually have a larger impact on the pound. The BoE also sets monetary policy through daily adjustments to interest rates on government bond purchases from discount banks (designated financial institutions that trade money market instruments ).
Gilts: gilts. British government bonds are also called gilts. Likewise, the spread between the 10-year gilt yield and the yield on other national bonds or U.S. Treasury bills over the same period affects the exchange rate of the pound against other currencies .
3-month Eurosterling Deposits: 3-month Eurosterling deposits. Sterling deposits held in non- UK banks are called Euro sterling deposits. The difference between its interest rate and the European deposit rate of other countries over the same period is also one of the factors affecting the exchange rate.