The Pound Sterling to Euro (GBP/EUR) exchange rate and Pound Sterling to US Dollar (GBP/USD) exchange rate strengthened on Friday after Bank of England Governor Mark Carney suggested that the next move for UK interest rates will be up.
The Pound Sterling to Euro exchange rate was trading in the region of 1.372
BoE deputy governor Ben Broadbent also supported the Pound Sterling exchange rate by saying that the UK is unlikely to suffer from a protracted period of deflation. His comments were just the latest from BoE policy makers who have played down the sharp fall in inflation, which was recorded earlier in the week. Broadbent said that low inflation is a positive for the national economy as it encourages consumer spending.
‘It is what some have termed ‘good’ deflation and while it is unlikely to go on for that long, it is positive, not negative, for demand and output. All else equal, we probably need to see not just stable prices of commodities and other tradable goods if we’re to meet the target over a reasonable horizon, but some further acceleration in domestic costs as well,’ Broadbent said in a speech at the Imperial College Business School in London.
Inflation in the UK was shown to have fallen to a record low level of zero earlier in the week. Divisions have emerged at the very top of the Bank over what this might mean in the coming months.
MPC members Mark Carney, Minouche Shafik, Kristin Forbes, David Miles and now Broadbent have played down the prospect of another rate cut.
The Pound Sterling then advanced sharply after BoE Governor Mark Carney said at a Bundesbank conference in Frankfurt, ‘We’re still in a position where our message is… that the next move in interest rates is going to be up.’
The Euro meanwhile was weakened by concerns over the situation in Greece. Sentiment towards the single currency remains fragile ahead of next Monday when the Greek government is expected to present a detailed list of proposed reforms to its partners in the Eurozone.
The Pound Sterling to US Dollar (GBP/USD) Exchange Rate was trading in the region of 1.4895
Against the US Dollar, the Pound advanced on the back of the BoE comments but those gains could be short lived if US GDP data comes in strongly.
