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Weekly roundup: Speculation about higher borrowing costs stimulated Sterling

currency-newsWeekly roundup: Speculation about higher borrowing costs stimulated Sterling
Bank of England (BoE) rate hike speculation was the main cause of the pound’s gains last week, with comments from Governor Mark Carney leading to speculation that higher borrowing costs could be on the horizon.

Although Carney very recently stated that the UK isn’t ready for a rate increase, he changed his tune slightly last week and observed; ‘Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional.’

Carney added; ‘The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations.’

The commentary pushed the pound higher against most the majors.

GBP exchange rates were also supported by the news that Prime Minister Theresa May survived the Queen’s Speech vote. While the PM remains on rocky ground after losing her majority in the UK general election, this result removed at least one layer of political uncertainty.

The Markit manufacturing, construction and services PMIs are likely to cause GBP exchange rate movement in the days ahead.

Last week UK GDP for the first quarter was confirmed at 0.2%. If this week’s PMI reports indicate that UK economic output slowed further in the second quarter the pound may fall from its recent highs.

So far the manufacturing variant has disappointed forecasts by dropping from 56.7 to a three-month low of 54.3.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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