GBP Rises To Five Year High On BoE Hawkish Comments

The pound climbed to a near five-year high against the dollar as markets reacted to the prospect of an interest rate hike before Christmas.

Sterling broke through $1.70 for the first time since August 2009 during a volatile day for financial markets that saw the Iraq crisis spur a rise in the oil price and a shares sell-off across Europe.

After Bank of England governor Mark Carney said last Thursday that borrowing costs could rise from their record low sooner than markets expected, investors have been scrambling to reposition for a hike this year. Attention is now turning to the publication on Wednesday of minutes from the Bank’s latest rate-setting meeting, with some commentators saying they might even show that one member of the nine-strong committee pushed for a rate rise from 0.5% this month.

Although some economists had already predicted the Bank might have to raise interest rates in 2014 as the economy gathers steam, Carney had until now repeatedly played down speculation of a hike this year. Chris Turner, strategist at ING, commented on the U-turn: “Now we are told to expect a rate increase sooner rather than later. Such dramatic changes in the BoE view are much more in line with where we see the UK economy, but do give the impression of a central bank which has been running behind the curve.”

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza