London: The pound headed for its fourth week of gains after Bank of England policymakers spurred expectations of an interest-rate increase in coming months.
Sterling extended its rise to a 14-month high versus the dollar as investors bet on a rate hike by February 2018, after BOE said some withdrawal of stimulus would likely be appropriate over the coming months. Option markets on Thursday showed sentiment on the currency turning bullish for the first time in more than three years, with the focus turning to a speech on Friday by BOE policymaker Gertjan Vlieghe for further clues on tightening.
“The important question now is what the MPC means with over the coming months,” said Commerzbank AG strategist Lutz Karpowitz in a research note. “The longer this period is going to be the higher the risk that the economy starts cooling, thus taking the pressure off the BOE.”
Sterling rose 0.4 per cent to $1.3450 by 9:40am in London, its highest level since July 2016. It strengthened 0.4 per cent to 88.64 pence per euro.
Best-performing currency
The premium on pound-dollar calls rose to the widest since 2009, ahead of a speech by BOE external Monetary Policy Committee member Vlieghe at 9:50am London time.
The pound has turned into the world’s best-performing currency this month as the central bank’s comments suggest it is willing to look past sluggish wage growth to remove the monetary stimulus put in place after last year’s Brexit vote. Its performance this September contrasts with a slide caused by a Europe-linked crisis 25 years ago on September 16, 1992, when Britain tumbled out of the Exchange-Rate Mechanism on a day known as “Black Wednesday”.
