British Pound (GBP) Exchange Rate: Sterling Rallies Today Following BoE Report
While the majority of economists forecast the Bank of England’s latest quarterly inflation report would have an adverse impact on the Pound, the British currency actually rallied against its major peers after the data was released.
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The Pound jumped by 0.5 per cent against the US Dollar, advanced on the Euro and trimmed declines against the Australian and New Zealand Dollars as the BoE renewed its commitment to keeping interest rates at record lows.
When forward guidance was first introduced in the middle of last year BoE Governor Mark Carney tied interest rate increases to the UK unemployment rate dropping to 7 per cent.
However, joblessness proceeded to fall far quicker than anticipated, sparking concerns that the BoE would be forced into raising rates early.
But now the central bank has confirmed that interest rates will be held at record lows for the foreseeable future and that any increases in borrowing costs will be slow and steady.
Carney asserted; ‘The first phase of guidance gave businesses confidence that Bank Rate would not be raised at least until jobs, incomes and spending were growing at sustainable rates. As guidance evolves, that remains the case: the Monetary Policy Committee will not take risks with the recovery.’
The BoE also noted; ‘The legacy of the financial crisis and the persistence of economic headwinds mean that interest rates may need to remain at lower levels for some time to come. Even when the economy has returned to normal levels of capacity and inflation is close to the target, the appropriate level of bank rate is likely to be materially below the 5 per cent level set on average by the committee prior to the financial crisis.’
The report showed that the BoE expects the unemployment rate to fall below the 7 per cent level in the first quarter of 2014.
Growth forecasts and inflation projections were also revised, with UK economic expansion of 3.4 per cent now expected across 2014.
The Pound is likely to remain supported throughout European trading and could extend gains against the US Dollar if today’s advance retail sales data for the world’s largest economy shows the stagnation expected.
The Pound is currently trading against the US Dollar in the region of 1.6532 and trading against the Euro in the region of 1.2165.