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Sterling on the move again as Carney hints at sooner than expected rate hike

In Market Analysis

GBPUSD-1306 (637x407)


We have seen significant moves in cable over the last couple of days; the pound climbed over 200 points against the US dollar following Governor Mark Carney’s address at the annual Mansion House speech on Thursday evening.

Carney gave his biggest hint yet that interest rates could rise before the turn of the year, saying ‘there’s already great speculation about the exact timing of the first rate hike in the UK and this decision is becoming more balanced. It could happen sooner than markets currently expect’. And with that one simple sentence the GBP jumped 50 points in a matter of seconds. Bidding pressure continued into the night and by 8am Friday morning cable peaked at 1.6990.

Although coming off a bit to settle around 1.6950 mid morning it is now looking increasingly likely that we will see the 1.70 handle broken in the coming weeks if not days and a break of this significant level could see the pound climbing higher, more than likely using this strong horizontal level as future support.

The UK are now highly likely to be the first major economy to tighten its monetary policy since the 2008 financial crisis reared its ugly head, sending a clear signal that its recovery is seemingly ahead of the US; economic growth shows no sign of letting up, with employment rising at a record pace too. This point was back up further by Fitch’s affirmation that the UK’s government bond grade stood at AA+, the second highest level possible, with the rating agency citing strong GDP growth, falling unemployment and inflation close to its 2% target as reasons to believe the nation’s credit outlook was stable.

Although the rate rise could well happen sooner than expected, Carney was quick to point out that it was still his intention to make any increases gradual, thus minimising any effects on homeowners; most economists predict the initial increase to be only 0.25% making the benchmark rate 0.75%. All in all then this is very good news for the UK economy and could ultimately prove very positive for the Tories in the forthcoming General Election due to take place next May.

Let’s just hope this feel good sentiment can be continued by the England boys over in Brazil with their important opening match of the FIFA World Cup 2014 against Italy on the horizon; the clash takes place in the jungle humidity of Manaus tomorrow night at 23:00 BST – COME ON ENGLAND!