Sterling hits month highs as Carney continues to drive the market

Sterling reached its highest point against the US dollar in more than a month today as it built further on gains yesterday in response to Bank of England governor Mark Carney.

The pound rose to highs of $1.299 in morning trading, marginally higher than levels reached before the election result this month. Yesterday it fell as low as $1.28 before Carney spoke.

The pound’s resurgence came after Carney made a speech hinting at the possibility of a rate rise at a forum for central bankers in Portugal.

Although Carney has been one of the most dovish members of the monetary policy committee (MPC), his comments acknowledge the growing tensions within the rate-setting body.

Three of the current eight members dissented from the last MPC decision to keep interest rates on hold a fortnight ago. Since then the Bank’s chief economist, Andy Haldane, who did not vote for a hike, has indicated he will likely support a rise at the next meeting.

Currency markets took Carney’s comments as an unambiguous sign a rate hike is imminent, but some economists pointed out the conditional nature of his statements.

“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the Monetary Policy Committee continues to lessen and the policy decision accordingly becomes more conventional,” Carney told fellow central bankers at a forum in Sintra, Portugal.

Simon French, an economist at Panmure Gordon, said: “To us this represents little new information on the path for the MPC. We hold our view that this offsetting impact is unlikely to materialise. We continue to see bank rate on hold at the August meeting and an exceptionally shallow path of normalisation.”

Chris Scicluna, an economist at Daiwa Capital Markets, said: “Carney made clear that he would support tightening policy only upon certain preconditions being met, emphasising in this respect some pretty big ifs: if stronger business investment or other components of demand offset weaker consumption growth, if domestic wage and inflation pressures recover, and if the economy’s and market’s reaction to the reality of the Brexit negotiations is smooth.”

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