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Sterling boost after another call for rise in interest rate

Published:  23 February, 2011

Sterling has gained against the euro and US dollar as another member of the Bank of England's monetary policy committee has voted for an interest rate hike.

Sterling hit a high of $1.6272/£1 - the highest since February 3 - after Bank Deputy Governor Spencer Dale joined Martin Weale and Andrew Sentance in calling for higher interest rates to deal with stubbornly high inflation.

Consumer Price Inflation currently stands at 4% and there has been increasing speculation that the Bank of England would increase rates as soon as May. Higher interest rates mean higher return for investors holding sterling based investments and as such, demand for sterling increases and the pound strengthens.

Nick Ryder of Smart Currency Exchange said: "I wouldn't get too excited about the Bank of England minutes. They simply show what many in the City have been expecting for a while - that the MPC is slowly coming round to the idea of raising rates. A 0.25% increase in the next six to 12 months is already priced in, so sterling is unlikely to break beyond $1.63/£1 or €1.19/£1 without a major boost from some other economic data.

"This is the best GBP/USD price in nearly a year, so if you need to buy US dollars, now is a great time. Such is the nature of foreign exchange that we could feasibly see some poor economic figures released that reverses the view on interest rates and we will back in the mid-$1.50's."

For more bespoke currency advice go to the joint Smart Currency Exchange dedicated website for the drinks trade,