Sterling stronger over week

Story link: Sterling stronger over week

Sterling strengthened over the week for the best performance of a major currency after analysts reiterated their expectation that interest rates will rise again soon in the UK. The release of the minutes of this month’s meeting of the Bank of England’s Monetary Policy Committee seemed to indicate that another rise is in the cards.

The minutes revealed that all nine members of the MPC voted for May’s 25-basis point hike and that the committee even considered a 50-basis point increase. Analysts had expected that at least one committee member would vote against a rate hike. On the basis of the strong support for May’s rate hike, it looks increasingly likely that the UK interest rate will rise to 5.75 percent, and that this will happen in July rather than in August.

During the week, sterling added 0.6 percent versus the US dollar, to $1.9860, while it gained 0.9 percent to £0.6780 in relation to the euro. The pound was 1 percent higher against the yen, to ¥241.40.

The Japanese currency dropped to a record low versus the euro early in the week as rising equities markets made investors confident. This increased the demand for carry trades, often financed by selling yen. After former Federal Reserve chairman Alan Greenspan warned of a possible “contraction” in China’s equities markets, risk became less attractive and some investors began to buy the yen again. Still, the yen ended the week about even against the euro, at ¥163.60, and it was 0.3 percent weaker against the greenback to ¥121.50.

Emerging market currencies rose in relation to the US dollar at the beginning of the week, but the general flight from risk later on sent them lower at the end of the week. The most affected were the Turkish lira, which ended the week 0.6 percent lower against the dollar to TL1.3295, and the South African rand, down 1.5 percent on the week to $7.0830 to the dollar.