Pound soars on upbeat Bank of England comments

An optimistic set of monetary policy meeting minutes released by the Bank of England (BoE) yesterday at the conclusion of its latest gathering lit a fire under the pound.

After making gains in the region of 1% versus all of its major peers, Sterling continues to see strong demand today. GBP/EUR is currently up 0.3% at €1.1268, with GBP/USD having risen by a commensurate amount to US$1.3438. GBP/AUD is performing slightly better, with gains of 0.4% taking the pairing to A$1.6805, although GBP/NZD has only moved up 0.1% to NZ$1.8545. GBP/CAD has risen in line with other pound pairings to strike C$1.6349.

Read on to find out just what the Bank of England said that made the pound so happy…

What’s been happening?

On the face of it, the latest BoE Monetary Policy Committee (MPC) meeting seemed fairly pedestrian. No changes were made to interest rates or quantitative easing, and only the two usual suspects – Ian McCafferty and Michael Saunders – pushed for the committee to raise borrowing costs.

However, the meeting minutes revealed that the bank saw the UK economy as outperforming the forecasts set out in its latest Inflation Report, which was released in August. Provided economic data continues to clock in broadly in line with the new trend, the minutes stated, the bank is likely to raise interest rates faster than the market is currently expecting.

With some analysts suggesting that this may mean that the BoE hikes interest rates as soon as November, demand for the pound swelled.

Although the euro was unable to resist the pound’s advances, it is finding support elsewhere thanks to comments from European Central Bank (ECB) policymaker Bostjan Jazbec, who calmed fears that the central bank would react to stronger euro exchange rates by intervening to weaken the currency.

US dollar also found strong support yesterday, thanks to above forecast inflation data. The consumer price index rose 1.9% in August – an above forecast result that saw markets beginning to hope once again that there may be a third interest rate hike from the Federal Reserve this year.

What's coming up?

There is nothing on the UK data calendar today, but the pound is likely to remain in strong form as the aftermath of yesterday’s Bank of England meeting continues to have a positive effect.

It’s a quiet day for Eurozone data, with only the trade balance figures for July and labour costs for the second quarter set for release soon.

According to forecasts, the latest US data is likely to take the shine off yesterday’s strong inflation figures. Advanced retail sales growth is expected to have slowed in August, while University of Michigan confidence index is predicted to fall. This further improves the likelihood that the pound will be able to hold on to its gains during today’s session and end the week on a high note.

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Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.