The pound hovered just below a 15-month high on Monday. Investors plunged bullish bets into the currency thanks to the heightened probability that the Bank of England will increase the cost of borrowing in the near future.
Sterling is ignoring the perils of Brexit and instead focusing on high inflation data and the resilient UK economy.
To stifle any dovish investors, the Bank of England noted last week that it was ready to step in to quench inflation with higher interest rates despite the uncertainties of Brexit. Sterling jumped to $1.36 in the wake of the statement.
Yesterday, Mark Carney, the Bank of England’s governor, stated that ‘’some withdrawal’’ of easy money stimulus would be adequate over the next few months.
The pound may take significant movements again this week as Prime Minister Theresa May specks in France. If May delivers a protectionist stance on Brexit negotiations. In the long-run, a delay in Brexit negotiations would be bearish for the pound. Leaving the EU will also reduce the openness of the UK economy, thus tampering growth.
Economic growth in Britain already slowed in the first half of 2017 and inflation could remain above the 2% target mark for the next few years, leaving the UK’s economy in a fragile position.
The Bank of England has not risen rates in over a decade. Instead the back recommenced quantitative easing in 2016, after the UK voted to leave the European Union by lowering rates.