Pound strengthens against euro after Bank signals interest rate rise

A speech by the Bank of England governor, indicating that the period of 0.5 per cent borrowing costs was coming to an end within months, worked to strengthen the pound against the single currency.

According to The Guardian, the Sterling pushed on from Thursday’s new high against the euro on Friday morning, up 0.24 per cent at €1.4384 (£0.974177)

Against the dollar, the pound stood at $1.5664, up about 0.2 per cent and moving back towards a two-week peak of $1.5676 scaled on Wednesday. Sterling also hit its highest level since early 2008 against a basket of currencies.

A rise in interest rates – which have been at the historic low of 0.5 per cent for more than six years – had previously not been expected until the middle of 2016.

However, Carney changed those expectations on Thursday night. He said: “It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages.

“In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”

The pound has already been strengthening against the euro as the fallout from the Greek debt crisis means the European Central Bank is seen as unlikely to curtail its monetary support for the single currency any time soon.

The Bank of England interest rate has remained the same since March 2009, when it was cut to help prop up the UK economy at the height of the financial crisis. This represents the longest period of unchanged rates since the second world war. It was last increased in July 2007 when it went up to 5.75 per cent.

Angus Campbell, a senior analyst at brokers FxPro, said there was an immediate benefit for British tourists travelling to the continent.

“It is tremendous for people going to the continent. [On] a year ago, your holiday is going to be 10 per cent cheaper,” he said. “We are at levels last seen before the credit crisis. 2007 was when the euro sterling [rate] was at this level. It is quite a significant breakthrough … It is a technical level that makes euro investors fear exposure to the euro even more.

“The upside to the euro is limited. It has become quite a toxic currency because of what has happened with Greece and there is still a rift between factions of the creditors.”