After Mark Carney boosted pound bulls by indicating an interest-rate increase is in sight, investors’ focus will shift to the views of other Bank of England officials when minutes of this month’s policy meeting are released next week.
The pound posted its best week since 2009 against the euro this week after the BOE governor used two public appearances to prepare U.K. investors for higher borrowing costs. Sterling was the week’s second-best performing major currency as a deal between Greece and its creditors allowed investors to shift their attention away from the chances of the nation exiting the euro-region and onto the outlook for monetary policy.
“The big theme in the foreign-exchange market has turned from Greece to monetary policy,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “Sterling has been underpinned by these comments by Carney. The minutes will be the next key event for sterling.”
The pound appreciated 3.6 percent this week to 69.42 pence per euro as 5 p.m. London time on Friday, the biggest gain since January 2009. It touched 69.37 pence, the strongest level since November 2007. Sterling rose for the first time in four weeks versus the dollar, climbing 0.7 percent to $1.5627.
Carney’s comments dragged investors’ outlook for the timing of the central bank’s first rate increase since 2007 to May 2016, from August as recently as last week, according to forward contracts based on the sterling overnight index average, or Sonia.
The BOE minutes, due to be released on July 22, will show if the central bank’s nine-member Monetary Policy Committee has started to split on whether to raise rates, having voted unanimously to hold the benchmark rate at a record-low 0.5 percent at every meeting this year.
Carney said on July 16 the time for such increases will become much clearer by the end of the year. Both he and fellow policy maker David Miles said two days earlier that the time was approaching to raise the key rate from the level it’s been since March 2009.
The move toward higher borrowing costs contrasts to the European Central Bank, which this week kept its main interest rate at a record-low 0.05 percent and said its bond-buying program of 60 billion euros ($65 billion) a month was proceeding well.
U.K. government bonds were little changed, with the yield on the benchmark 10-year gilt at 2.08 percent. The price of the 5 percent bond due in March 2025 was at 125.385 percent of face value. Implied yields on short-sterling futures contracts expiring in March 2016 climbed eight basis points, or 0.08 percentage point, this week to 0.91 percent.