Sterling Strengthens Against Euro on Interest Rate Outlook

by on June 13, 2014 9:38 pm BST

The Sterling hit levels not seen since November against the euro, breaking through .8000. Traders are pushing the pound higher on the speculation that the Bank of England (BoE) will increase their benchmark rate from .5 percent sooner than expected. The pound strengthened against all of its major pairs, reaching 1.6991 against the greenback before pairing back gains.

BoE Governor Mark Carney has delayed increasing rates because he said that higher rates would burden homeowners with debt. “Carney has helped deliver a repricing of the market, said Michael Sneyd, a FX strategist at BNP Paribas. Forward contracts indicate that traders are speculating a 25 bps increase in the benchmark rate by January. In a speech delivered in the financial district yesterday, Carney said “it could happen sooner than the market expects.”

EURGBP is on the verge of closing the week under .8000, which would help the pair to continue downward targeting .7900. There is price action support at .7970, but the central bank policy divergences between the BoE and the European Central Bank (ECB) should extend the downside with the yearly low of .7756 in sight. The pair will find resistance at .8060 on a pullback.