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British Pound Climbs as Carney Says Bank of England May Discuss Higher Rates Soon

June 28, 2017 at 15:47 by Yahia Barakah

Stack of UK coins on GB pound billsThe British pound surged against most of its major peers on Wednesday, reaching the highest level against the US dollar since June 8. The British currency rose following bullish comments from Bank of England Governor Mark Carney this afternoon, which took the market by surprise.

The Governor of the Bank of England said at a European Central Bank conference in Portugal that the coming months will likely see discussions within the central bank of raising interest rates in the United Kingdom. The nation’s economy is moving past a period of weakness and into operating at full capacity, which signals that higher interest rates will possibly be needed in the near future, according to Carney.

Carney added that more investments may pour into the British economy as the global economic recovery broadens, spurring stronger wage growth within the nation. Carney believes that policymakers in the BoE’s Monetary Policy Committee will address issues related to growth in the coming months, including possible removal of some of the monetary stimulus introduced by the central bank.

Today’s remarks represented a sudden change in Carney’s stance, who said earlier this month that it was not yet the time to start raising interest rates amid uncertainty over Brexit negotiations with the European Union. Five out of the eight members of the BoE’s Monetary Policy Committee voted on June 15 to keep interest rates unchanged at 0.25%. Carney was among the members who voted to keep the rates steady.

Ahead of Carney’s speech today, Bank of England Deputy Governor for Financial Stability Sir Jon Cunliffe expressed a view that differed from the one Carney voiced. Cunliffe told the BBC that policymakers need more time to assess the UK economic outlook before increasing borrowing costs as current forecasts for consumer spending show weakness. The deputy governor also pointed to recent inflation projections, which fall out of the favorable range for members of the Monetary Policy Committee. UK inflation currently stands at 2.9%, well above the bank’s 2.0% target.

However, support for the case of higher interest rates seem to be growing within the Bank of England. Following the latest policy decision, the bank’s chief economist Andy Haldane, who voted to keep rates unchanged, signaled that he may switch camps in the second half of the year if economic growth remained stable.

Votes supporting higher rates from Haldane and Carney would add up to votes from the three members of the Monetary Policy Committee who chose to raise rates earlier this month, totaling five votes out of eight. The committee’s next meeting is due to be held on August 3.

GBP/USD rose to 1.2927 as of 15:30 GMT on Wednesday after touching 1.2968 at 14:40 GMT, the pair’s highest level since June 8. GBP/USD began trading today at 1.2814. EUR/GBP dropped to 0.8782, after reaching down to 0.8771 at 14:40 GMT, a level last seen on June 23. EUR/GBP was at 0.8849 when the day started.

If you have any questions, comments, or opinions regarding the Great Britain Pound, feel free to post them using the commentary form below.

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