Pound Sterling (GBP) Forecasted to Break 1.7 vs US Dollar as Carney Carney Warns of Imminent Interest Rate Rise

The reaction by markets confirm traders were in no way expecting the comments. At the weekend we are seeing some strong levels for sterling sellers:

The pound to euro exchange rate is at 1.2535.
The pound to dollar exchange rate is at 1.6965.
The pound to Australian dollar rate is at 1.8060.

If you are holding out for better rates, or afraid of a further deterioration in the FX pair you are watching, then consider getting an independent FX firm to help set up a risk management strategy. They will also be able to deliver up to 5% more currency than your bank would typically deliver on execution.

Why the pound sterling powered ahead

BoE Governor Mark Carney, speaking at the Mansion House in the City of London, told markets:

"There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced.

"It could happen sooner than markets currently expect." Below was the reaction in the GBP/EUR:

According to analysis from Reuters, few economists had expected rates to increase until the second quarter of next year.

Jonty Bloom at the BBC has consensus a little earlier, saying, "until Thursday the consensus was that rates would stay at 0.5% for until at least the beginning of next year and possibly longer."

Either way, we take this as a sign interest rates could rise in the Autumn at the soonest, December by the latest.

Forecasting further gains for the pound: GBP/USD to break 1.7

According to a currency forecast issued by Lloyds Bank we are likely to see further advances today:

"While Carney provided no detail of how soon rates could rise, it is unlikely that he would have made such a bold statement without a real possibility that rates could rise this year. From here, the 1.70 level is the next target and seems likely to break today.

"Though moves beyond this may still prove difficult, yield spreads do suggest scope for gains and we would expect the pound to hold above 1.70 by the end of the day."

Don't stand below the euro

Meanwhile, the euro is headed in the opposite direction - it as only this month that the ECB cut interest rates.

So while rates are being cut in the Eurozone, rates are due to rise in the UK. This differential will continue to dominate levels in the pound to euro exchange rate.

"Don’t stand below the euro. It marched ever closer to a breach below $1.35, its lowest in four months, in the wake of last week’s aggressive policy easing by the ECB. The 18-country central bank is now perceived to be at the back of the global line to raise borrowing rates," says Joe Manimbo at Western Union.

That dovish outlook has pulled European yields lower, weighing steadily on the single currency.

The euro fell to 13-month lows against its New Zealand peer after its central bank earlier today raised borrowing rates.

"Both economic and monetary policy divergence appears to be good for more euro losses over the immediate horizon. Uncertainty remains with the Fed on tap next week. For businesses, make sure you have a Stop Loss Order in place in the event the euro swings sharply away from your budgeted exchange rate," says Manimbo.