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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