EUR/GBP Drops to 0.78 on BOE Rates Divergence

The pound rose to the strongest level in two years versus the euro amid bets the Bank of England is moving closer to increasing interest rates as its euro-area counterpart boosts stimulus.

Sterling pared a decline against the dollar after BOE Governor Mark Carney said the argument for when to raise borrowing costs “has become more balanced.” U.K. policy makers may have to move more quickly on rate increases if salary gains aren’t matched by growth in productivity, Deputy Governor Nemat Shafik told the Yorkshire Post today. U.K. government bonds climbed for a fifth day.

“Carney’s definitely preparing the ground for the first interest-rate hike,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Buying the pound against the euro is a much safer proposition. There is so much dollar bullishness out there it’s more likely to be an uneven ride for cable,” she said, referring to the pound-dollar exchange rate.


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