The pound accelerated to its highest level in 19 months versus the euro as the market reacted to remarks by the Bank of England Governor Mark Carney signaling that interest rates may be hiked sooner than expected.
The pound rose 0.3 percent to 79.84 pence a euro in midday trading in London, its most impressive level since November 13, 2012. This was also the eighth day that the sterling rose against the shared currency, its longest winning streak since April 2010. The pound also surged 0.2 percent to $1.6956 and hit $1.6992, its strongest since May 6.
The pound has advanced 9.1 percent over the past one year, making it the best performing currency out of the 10 advanced-economy currencies monitored by Bloomberg Correlation-Weighted Indexes. The euro has increased 1.7 percent while the dollar has inched 0.3 percent higher.
Carney’s disclaimer that higher interest rates may negatively affect homeowners already grappling with a huge debt burden didn’t drag the pound. BoE has maintained its key interest rate at a record low of 0.5 percent set during the recession on March 2009. Since May, Carney has hinted that policymakers may hold until next year to hike interest rates if the economic recovery continues while inflation remains stable.
“There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced,” said Carney. “It could happen sooner than markets currently expect.”
Carney’s remarks differ from the stance taken by the European Central Bank, which lowered interest rates and rolled out more stimulus policies last week. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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