June 17--The pound climbed above $1.70 yesterday as investors bet on an interest rate hike before the end of the year.
Sterling hit $1.7010 – a level not seen since August 2009 – and rose as high as euro 1.2563 before easing on another tumultuous day on the currency markets.
The pound has been rising steadily for nearly a year and has gained fresh momentum in recent days as the Bank of England prepares the ground for interest rates to rise.
Governor Mark Carney last week said rate rises 'could happen sooner than markets currently expect'. The comments were seen as a clear sign they could rise this year rather than next year – pushing up borrowing costs for millions of households with mortgages.
The last rise in interest rates was in July 2007 – from 5.5pc to 5.75pc – but they were cut to record lows after the financial crisis struck. Rates have been held at 0.5pc since March 2009, but with the economy now growing and unemployment falling the pressure is mounting on the Bank to act.
Speculation of a rate rise this year intensified over the weekend when deputy governor Charlie Bean said it would be 'welcome' as a 'demonstration that the economy is healing'. Bean, who retires at the end of this month, added: 'Frankly, having interest rates at an emergency level for a very long time is not a situation one wants to be in.'
Tony Wilson, head of strategy at foreign exchange specialists Fexco, said: 'The clamour around interest rate rises is now a cacophony. With the rate rise drumbeat getting steadily louder and Britain's economy powering ahead, sustained demand for sterling is pushing the pound up into territory not seen for nearly five years.'
Analysts believe that minutes from this month's meeting of the monetary policy committee, published tomorrow, could show at least one panel member has already started voting for higher rates.
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