Pound picks up, FTSE falls as Haldane backs BoE rate rise
Reuters
Published Jun 21, 2017 14:36
Pound picks up, FTSE falls as Haldane backs BoE rate rise
By Jemima Kelly and Patrick Graham
LONDON (Reuters) - Sterling rebounded from a two-month low on Wednesday to trade back above $1.27, after Bank of England Chief Economist Andy Haldane signalled he would weigh in behind a rise in interest rates in the second half of this year.
The pound had earlier sunk beneath $1.26 GBP=D3 for the first time since mid-April as investors worried about Prime Minister Theresa May struggling to find the support she needs for her government, which lost its parliamentary majority in elections just under two weeks ago.
But it reversed those falls as the chief economist's speech was published, trading up 0.6 percent on the day to reach as high as $1.2710. Against the euro, it rose 0.4 percent to 87.78 pence (EURGBP=D3).
Haldane's comments ran contrary to those of Governor Mark Carney, who had driven the pound lower on Tuesday by saying "now was not the time" to begin to raise rates.
Bets on a rate hike within the next year surged. Short sterling contracts for December reversed all of their gains since Carney's speech, showing markets pricing in a greater than 50 percent chance of the Bank raising rates by then.
British gilt futures FLGcv1 also shed around 25 ticks and government bond yields hit session highs. (GB2YT=RR) (GB10YT=RR)
"Here are some hawkish comments that are causing the market short end of the rates market to reprice, and to price a greater probability of tightening, and sterling is responding to that," said Barclays (LON:BARC) currency strategist Hamish Pepper, in London.
"There was a period of time in which it was all about politics for the currency – how big the political risk premium should be and so on – but for a while now we’ve been trading more like a normal currency, where data surprises and central bank rhetoric drives the normal kinds of reactions."
Pepper added that the market - and Barclays - had thought it very unlikely that the BoE would be raising rates any time soon.
The UK's blue chip FTSE 100 (FTSE), which tends to fall as sterling rises because most of its multinational constituents earn in foreign currencies, hit a session low after the comments and was last down 0.5 pct.
The Queen's Speech, which featured promises from the prime minister to listen more closely to businesses' concerns about Britain leaving the European Union, appeared to have little impact on the currency, which has fallen around 15 percent against the dollar since the vote for Brexit a year ago.
At a time of unprecedented political uncertainty, May is under increasing pressure to secure a deal with Northern Ireland's Democratic Unionist Party (DUP) to prop up her government after nearly two weeks of talks.
Get The App
"The only situation where I could see massive downside (for sterling) materialising is if the government collapses or Labour (the left-wing opposition party) gets the chance to form a government," said Stephen Gallo, head of European FX strategy with Bank of Montreal in London.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.