Pound Sterling to Brazilian Real (GBP/BRL) Exchange Rate Forecast to Climb after Brazil?s Central Bank Hiked the Cash Rate

The British Pound strengthened versus most of its currency competitors during Thursday’s European session. The appreciation can be attributed to a survey which showed that the UK’s personal insolvency rate dropped to its lowest level in nearly a decade. ‘It has taken a long time, but with wages outstripping inflation again, people are finding it easier to repay their debts without resorting to insolvency procedures,’ said Phillip Sykes, president of R3, the insolvency trade body.

In addition to the sharp fall in the UK’s personal insolvency rate, the British asset strengthened in response to news that the Royal Bank of Scotland (RBS) saw an unexpected quarterly growth. Whilst this wouldn’t ordinarily have a significant impact on the British economy, the fact that the UK government owns some RBS shares makes the news very positive for the British government. The Conservative party have already stated their intention to sell off their shares in RBS within the next five years. Continued growth will see share prices rise and give the government more returns after bailing out the bank at the peak of the financial crisis.

The Pound Sterling to Brazilian Real (GBP/BRL) exchange rate is currently trending in the region of 5.2039.

Conversely, the Brazilian Real softened versus its currency rivals on Thursday in response to Brazil’s central bank hiking the cash rate from 13.75% to 14.25%. The central bank did, however, indicate that this would be the final rate increase of the current two-year tightening cycle. The unanimous decision to increase the official cash rate for the 16th time since April 2013 was designed to tackle significant inflationary pressures. The bank stated that to leave the cash rate untouched at its current level ‘for a sufficiently prolonged period is necessary for inflation to converge with the target at the end of 2016.’

‘The central bank is very focused on expectations for 2016,’ said Ignácio Crespo, an economist at brokerage firm Guide Investimentos in São Paulo. ‘The bank sees 14.25% as enough to move expectations down to target.’ But other analysts are less convinced by the move. ‘The adjustment process is taking a toll on short-term growth,’ Luiz Awazu Pereira da Silva, the central bank's director of economic policy, said in a speech last week.

The Pound Sterling to Brazilian Real (GBP/BRL) exchange rate was trending within the range of 5.1878 to 5.2039 during Thursday’s European session.