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Pound strengthens against euro after Bank signals interest rate rise Pound strengthens against euro after Bank signals interest rate rise
(34 minutes later)
The pound has hit a seven and a half year-high against the euro after Mark Carney signalled that the first rise in interest rates since the global financial crash could take place around the turn of the year. The pound has hit a seven-and-a-half year high against the euro after Mark Carney signalled that the first rise in interest rates since the global financial crash could take place around the turn of the year.
A speech by the Bank of England governor, indicating that the period of 0.5% borrowing costs was coming to an end within months, worked to strengthen the pound against the single currency.A speech by the Bank of England governor, indicating that the period of 0.5% borrowing costs was coming to an end within months, worked to strengthen the pound against the single currency.
Sterling pushed on from Thursday’s seven and a half year-high against the euro on Friday morning, up 0.24% at €1.4384 (£0.974177) Sterling pushed on from Thursday’s new high against the euro on Friday morning, up 0.24% at €1.4384 (£0.974177)
Against the dollar, the pound stood at $1.5664, up about 0.2% and moving back towards a two-week peak of $1.5676 scaled on Wednesday. Sterling also hit its highest level since early 2008 against a basket of currencies.Against the dollar, the pound stood at $1.5664, up about 0.2% and moving back towards a two-week peak of $1.5676 scaled on Wednesday. Sterling also hit its highest level since early 2008 against a basket of currencies.
A rise in interest rates – which have been at the historic low of 0.5% for more than six years – had previously not been expected until the middle of 2016.A rise in interest rates – which have been at the historic low of 0.5% for more than six years – had previously not been expected until the middle of 2016.
However, Carney changed those expectations on Thursday night. He said: “It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.” However, Carney changed those expectations on Thursday night. He said: “It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages.
“In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”
Related: Interest rate rise set for new year, warns Bank of England governorRelated: Interest rate rise set for new year, warns Bank of England governor
The pound has already been strengthening against the euro as the fallout from the Greek debt crisis means the European Central Bank is seen as unlikely to curtail its monetary support for the single currency any time soon.The pound has already been strengthening against the euro as the fallout from the Greek debt crisis means the European Central Bank is seen as unlikely to curtail its monetary support for the single currency any time soon.
The Bank of England interest rate has remained the same since it was cut to 0.5% in March 2009 to help prop up the UK economy at the height of the financial crisis. This represents the longest period of unchanged rates since the second world war. It was last increased in July 2007 when it went up to 5.75%. The Bank of England interest rate has remained the same since March 2009, when it was cut to help prop up the UK economy at the height of the financial crisis. This represents the longest period of unchanged rates since the second world war. It was last increased in July 2007 when it went up to 5.75%.
Angus Campbell, a senior analyst at brokers FxPro, said there was an immediate benefit for British tourists travelling to the continent.Angus Campbell, a senior analyst at brokers FxPro, said there was an immediate benefit for British tourists travelling to the continent.
“It is tremendous for people going to the continent. [On] a year ago, your holiday is going to be 10% cheaper,” he said. “We are at levels last seen before the credit crisis. 2007 was when the euro sterling [rate] was at this level. It is quite a significant breakthrough .... It is a technical level that makes euro investors fear exposure to euro even more. “It is tremendous for people going to the continent. [On] a year ago, your holiday is going to be 10% cheaper,” he said. “We are at levels last seen before the credit crisis. 2007 was when the euro sterling [rate] was at this level. It is quite a significant breakthrough … It is a technical level that makes euro investors fear exposure to the euro even more.
“The upside to euro is limited. It has become quite a toxic currency because what has happened with Greece and there is still a rift between factions of the creditors.” “The upside to the euro is limited. It has become quite a toxic currency because of what has happened with Greece and there is still a rift between factions of the creditors.”