It has been a strong day for Sterling and the UK economy with the pound gaining strength against most of its major counterparts. Against the dollar Sterling rose by over a cent, climbing from a low of $1.6425 to a high of $1.6584. The move means the pound has now clawed back over 1.75% against dollar in just over a week, climbing back towards the two and a half year high we witnessed at the end of January.
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So what caused todays spike?
In Monday's post I mentioned that one of the key events that could impact exchange rates this week would be the Bank of England (BoE) inflation report and that was exactly what happened. A few weeks ago BoE governor Mark Carney did his best to try and talk the pound down by saying he did not want Sterling's strong performance to start effecting UK exports, which have gone a long way in aiding the recent UK economic recovery. This mornings speech gave Mr Carney the ideal platform to once again devalue the pound and a few of my team (me included) thought it could be well be on the cards.
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If fact, the opposite happened and Mr Carney was very positive in what he had to say. With his forward guidance policy clearly working, today's speech highlighted that the central bank are in no rush to raise interest rates even though unemployment is falling faster than they could have ever expected.
Mr Carney stated that he and his fellow policymakers will now be looking at other economic indicators and not just unemployment before they review a rise in interest rates and went on to say that when rates do eventually start to rise it will be done gradually.
These comments coupled with a rise in the UK growth forecast for 2014 have given investors extra confidence that there will be no knee jerk reactions from the BoE in the near future, and the pound certainly took full advantage.
Today's move once again gives the pound the edge of the dollar and unless we see some positive reaction from the U.S. government and Federal Reserve in the coming months the potential for further gains will continue to grow.
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