Sterling has strengthened further today with GBPUSD hitting its highest level since October 2008 having previously breached the landmark 1.7000 level last week, but more on the back of dollar weakness rather than sterling strength following the FOMC last night.
Regardless of this, the outlook for sterling remains positive as we’ve seen a significant shift in stance from the Bank of England’s Mark Carney who, after his speech at Mansion House last week and more recently following the release of the MPC minutes, you could almost call a hawk. The BOE is paving the way for rate hikes to commence sooner than previously anticipated and despite their very questionable efforts to improve the flow of communication, they are clear that if it’s not before 2015 it will be very early on next year.
The momentum has been with sterling for some time now as the trade weighted index hit a five year high back in January 2014 as a continual flume of strong economic data was released showing that the UK economy was in far better shape than the BOE had previously thought. Throughout this year that data has remained consistently strong and more often than not surprising to the upside.
Even though we did not see any votes for a rate hike this month, the first vote could come as soon as the next meeting in July, although we won’t find out until towards the end of July. For now the line in the sand is the turn of the year for the first hike and until then sterling could remain well supported purely for the fact that it will be the first to move out of the major central banks.