The pound surged to its highest level in 21 months against the euro over bets that the Bank of England may tighten its fiscal policy this year at a time when the European Central Bank is easing policy.
The sterling accelerated 0.1 percent to trade at 79.26 pence per euro as of 10:49 a.m. in London after earlier surging to 79.19 pence, its highest level since September 2012. The pound has advanced 1.1 percent so far this week against the euro. The U.K. currency remained slightly unchanged against the dollar at $1.7147 after earlier jumping to $1.7180, its highest level since October 2008. The sterling has appreciated 0.7 percent since Monday, its longest winning streak in a week since the week through September 21, 2012.
“Over the next six-to-12 months I expect the euro-sterling downtrend to persist,” Alvin Tan, a London-based foreign-exchange strategist at Societe General SA told Bloomberg. “Economic and policy divergence between the U.K. and the euro area are very clear. The BOE is set to tighten before the end of the year, in our view.”
The pound has gained an upper hand against the U.S. dollar this week after data this week showed that construction and manufacturing sectors recorded faster growth in June. This has fuelled speculation the BOE may consider hiking the record low interest rates. Markit Economics projected the economy to expand by 0.8 percent in the second quarter, based on construction and manufacturing data.
Should the economy grow by this estimate, it will not only match the growth rate posted in the first quarter, but it will also propel the gross domestic product to its pre-crisis levels. To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
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