The pound climbed to a near five-year high against the dollar yesterday as markets reacted to the prospect of an interest rate rise before Christmas.
Sterling broke through
After the Bank of
Although some economists had predicted the Bank might have to raise interest rates in 2014 as the economy gathers steam, Carney had until now repeatedly played down speculation of a hike this year.
The pound rallied on Carney's remarks and yesterday added to gains as speculation grew that talk of rate hikes in the minutes was what prompted the change of tune. At one point the pound hit
The movement in sterling is good news for holidaymakers before the peak summer season, but a hindrance for British exporters, who are in the vanguard of
The US Federal Reserve meets this week and investors will be looking for clues to when it will start to raise rates from 0.25%.
"Wednesday's Bank of
"If the two updates highlight the increasing policy divergence between the two central banks, pounds /$ [exchange rate] could finally make a sustained break through the critical
The pound also managed some short-lived gains against the euro. It hit a 20-month high of 79.59p before easing back to around 79.85p against the European single currency, which has come under pressure as the
Further support for the pound came from remarks by retiring Bank deputy governor
Financial markets have now fully priced in a hike by the end of 2014 but analysts are divided over how soon and how far borrowing costs go up again after that first move. Many predict the strength of sterling will make the Bank cautious. Policymakers at the Bank have stressed that when they raise rates, they will do so only gradually.
"A late-2014 rate increase does not necessarily mean we should not expect a second move to occur so quickly," said
"For one thing, the BoE will not wish to put too much upward pressure on sterling given that the Fed is unlikely to move until the spring and the ECB is also conducting a policy of aggressive easing."
Elsewhere in financial markets, oil prices rose as the crisis in
The higher pound will squeeze exporters such as luxury car maker Bentley Photograph:
SEPTEMBER 2, 2014
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