Cable Approaching 1.70 as Carney Signals at a Possible Rate Hike
The British pound advanced against its US counterpart Friday and is approaching the key 1.70 level after three consecutive days of gains.
The GBPUSD advanced 0.24 percent to 1.6964 in the late North American session. The pair reached an intraday high of 1.6991 as the bulls looked to topple 1.70. The trend line shows initial support at 1.6882. The pair’s next resistance test is 1.6979. A breach of this level would expose 1.7028 as the next target.
In other trading, the euro declined further against the pound Friday. The EURGBP exchange rate fell 0.39 percent to 0.7977, its lowest level since October 2012. Initial support is likely found at 0.7961 and resistance at 0.8047.
Cable was supported by comments from Bank of England Governor Mark Carney, who said on Thursday the central bank could raise interest rates sooner than previously expected.
“There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced,” Carney said in a speech at the Mansion House in London Thursday. “It could happen sooner than markets currently expects.”
Carney also noted underlying risks to recovery, including the strength of the pound, which could limit the country’s lagging export recovery. Carney said any change to policy would be “gradual and limited.”
The BOE this month kept monetary policy unchanged. The Bank rate has been at a record low of 0.5 percent for more than five years.
Carney’s comments came one day after the Office for National Statistics said the UK economy added 345,000 jobs in the three months through April, the largest increase since records began in 1971. Joblessness declined 161,000 over the same period as the unemployment rate fell from 6.8 percent to 6.6 percent.
The forex market’s reaction to the jobs report was subdued Wednesday because it was accompanied by disappointing earnings data. Average earnings increased only 0.7 percent between February and April, following a gain of 1.9 percent in the three months through March.
BOE officials have publicly discussed rate hikes in recent months, adding further to the view policymakers are becoming more comfortable with the pace of economic recovery. Earlier this week the National Institute of Economic and Social Research said the economy expanded 0.9 percent between March and May, finally surpassing its pre-recession peak. The NIESR said the economy is about 0.2 percent above where it was at the beginning of 2008.
The BOE is widely expected to be the first major central bank to raise rates. Carney’s latest comments suggest the central bank could be prepared to introduce a rate hike by the end of the year
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