Pound Surges to its Highest Level in 5 ½ Years on Interest Rate Speculation

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Pounds Surges to its Highest Level in 5 ½ Years on Interest Rate SpeculationThe pound rose to a 5 ½ year-high against the U.S. dollar last week due to speculation that the Bank of England may hike its key interest rate soon, spurring demand for the British currency.

The pound rose 0.3 percent to trade at $1.7016 at the London close and rose to $1.7063, its strongest level since October 21, 2008. The U.K. currency remained slightly unchanged at 79.86 pence per euro after earlier surging to 79.59 pence on Monday, its highest level since October 1, 2012.

“The strength of the pound is consistent with the strength of the economic data and expectations that the Bank of England will be the first major central bank to raise interest rates,” Henrik Gullberg, a London-based currency strategist at Deutsche Bank AG told Bloomberg. “At $1.70, further upside may be limited given the market has fully priced good news. That said, the currency is likely to be well underpinned near that level.”

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U.K. 10-year gilts plunged extended their decline to a third week, the longest losing streak since September after minutes of the Bank of England’s June meeting signaled that interest rates may be hiked sooner than expected; echoing BOE’s Governor Mark Carney’s comments. Last Sunday, BOE’s Deputy Governor Charlie Bean said he welcomes the interest rate increase as it signals that the economy is heading back to normal.

10-year yields surged 0.02 percentage point, or two basis points, to 2.76 percent this week. The rate of 2-year gilts accelerated four basis points to 0.90 percent, climbing down from Tuesday’s 3-year high of 0.93 percent. The price of 2.25 percent U.K. bond that matures in September 2023 fell 0.11 to 95.875. 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