The GBP/USD surged more than 130 pips on Tuesday after Bank of England Governor Mark Carney said the time for an interest rate increase was moving closer, despite the recent slowdown in economic growth.
“The point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent growth above trend, a firming in domestic costs, counter-balanced somewhat by disinflation imported from abroad,” Mark Carney told UK Parliament’s Treasury Committee.
“Once rates begin to adjust, we expect for those adjustments to be at a gradual pace and to a limited extent,” Carney added.
The Bank’s Monetary Policy Committee has maintained record low interest rates for more than six years.
Carney’s job of managing rate expectations hasn’t gone according to plan since he assumed office on July 1, 2013. He and his colleagues underestimated the pace of the labour market recovery, which significantly hindered the Bank’s forward guidance on interest rates. Carney has been saying that a rate adjustment is nearing for more than a year. However, according to analysts, UK rates will remain at record lows until next year at the earliest.
The GBP/USD climbed to a daily high of 1.5628 following Carney’s bullish sentiment. The GBP/USD would later consolidate at 1.5615, advancing 0.8%. The pair is likely to face immediate resistance at the daily high, followed by 1.5650. On the downside, initial support is likely found at 1.5451, the daily low, followed by 1.5400.
In other trading, the pound strengthened against the euro, as the EUR/GBP fell 0.3% to 0.7088. The pair faces immediate support at 0.7091; a clean break below that level would expose 0.7054, the low from July 6. On the upside, initial resistance is likely found at 0.7120, followed by 0.7226.
In economic data, UK inflation fell to 0% in June from 0.1% in May, the Office for National Statistics confirmed on Tuesday. So-called core consumer prices, which strip away food and energy, rose 0.8% annually in June, down from 0.9% in May.
In Eurozone data, German investor confidence deteriorated in July, according to ZEW. However, the Mannheim, Germany-based think tank said the Greek debt crisis was not impacting investor confidence as much as in previous months. The economic sentiment index fell to 29.7 in July from 31.5. The current situation index climbed 1 point to 63.9.