Pound Appreciates on Interest Rate Speculation

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Pound Appreciates on Interest Rate SpeculationThe pound rose to a two-year high versus the euro on speculation the Bank of England will hike interest rates soon, while the European Central Bank prepares to add further stimulus.

The U.K. currency rose 0.2 percent to trade at 78.10 pence per euro as of 4:34 p.m. in London after touching 77.85 pence, its highest level since July 2012. The pound declined 0.2 percent to $1.6303, a decline of 5.2 percent from $1.7192, the strongest level this year that it touched on July 15.

The pound reduced its losses versus the dollar after BOE Governor Mark Carney signaled interest rates may be increased soon, saying the debate about the timing of increase in borrowing costs “has become more balanced”. Deputy Governor Nemat Shafik also told the Yorkshire Post that British officials may have to increase lending rates quickly if wage growth isn’t matched by growth in output.

“Carney’s definitely preparing the ground for the first interest-rate hike,” Jane Foley, a London-based senior currency strategist at Rabobank International, told Bloomberg News. “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, “added Foley in reference to the GBP/USD exchange rate.

BOE policy makers are now tracking wage growth in order to determine when to increase rates. Though inflation is less than the target 2 percent, it still surpasses increases in income, which hovers close to a five-year low.

On the other hand, the ECB has repeatedly intervened to curb further declines of the euro-area economy by reducing interest raters and availing cheaper loans to lenders. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com