The pound climbed to almost 1.5-month highs against the US dollar on Wednesday after Bank of England maintained interest rates at current record lows until unemployment rate in the United Kingdom decreases to 7%.
GBP/USD reached its highest point since June 21st at 1.5491 at 10:55 GMT, after tumbling to 1.5207 earlier today, close to key support level of 1.5200. At 13:44 GMT the pair was trading at 1.5476, up by 0.83% for the day.
It became clear that Bank of England Governor Mark Carney linked the banks monetary policy outlook to unemployment for the first time, as he tried to quell investor bets on higher interest rates. It was unlikely bank policymakers to tighten policy as long as unemployment rate in the country surpasses 7%. Carney said that unemployment was not a target and that the 7% threshold might be set aside, if low interest rates begin to pose a threat to financial stability, in case the publics intermediate-term inflation expectations rise or if intermediate-term inflation projections rise above 2.5%. If inflation rate is at 2.5% in 12 or 18 months from now, the policy of keeping the base interest rate at 0.50% till Q3 2016, will be set aside.
“It’s a very weak form of forward guidance, subject to so many conditions, so many get-out-clauses,” said Ned Rumpeltin, head of Group of 10 currency strategy at Standard Chartered Plc in London, cited by Bloomberg. “They are going to have to work harder to change market expectations of rates sooner if we see improvements” in the economy.
The Bank Of England stated also that short-term interest rates had increased since May and this suggested a faster than likely withdrawal of stimulus, given the economic outlook of UK. Mark Carney emphasized that economic recovery was frail, saying that growth was weak by historical standards and economic activity may not return to levels before the crisis in the next 1-year period.
Meanwhile, the greenback was under pressure, as recent economic data from the United States fueled the uncertainty over the future of Federal Reserve’s monthly asset purchases. Chicago Federal Reserve Bank Chairman Charles Evans said that he would not rule out the withdrawal of central bank’s stimulus measures at the bank’s meeting in September.
Elsewhere, the sterling soared against the euro as well, with EUR/GBP cross tumbling 0.85% to 0.8596 at 14:09 GMT. On the other hand, GBP/JPY pair was trading lower, losing 0.13% to 149.86 at 14:09 GMT.
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