Kamala Harris: Balancing Loyalty and Change in Her Bid for the Presidency

[jasonr3255]

(Updates prices, U.S. inflation numbers)

* Sterling index strongest since July 2008

* Wage data, BoE comments, seen as boosting pound

* Strategists say sterling being used as safe haven

By Jemima Kelly and Patrick Graham

LONDON, June 18 (Reuters) - Sterling reached a seven-year high against a trade-weighted basket of currencies on Thursday as investors revised their expectations of when British interest rates will start to rise.

The pound has gained almost 2 percent against the dollar since Wednesday morning, boosted by numbers showing wages grew at their fastest rate in nearly four years in April and by hawkish comments on interest rates from a Bank of England policymaker.

On Thursday, sterling hit a seven-month high of $1.5930 after UK retail sales data. The numbers showed growth slowed last month, but they beat expectations on a month-on-month basis.

Also helping the pound was a cautious statement by the Federal Reserve on Wednesday evening, which disappointed investors expecting a clear signal on when U.S. rates would start to rise, dragging down the dollar.

An increase in U.S. inflation did little to turn that round and by 1422 GMT, sterling was 0.4 percent higher at $1.5896 .

"Really what's happening is that investors have not been paying too much attention to the pound, because the focus has all been about the Fed," said Michael Sneyd, a currency strategist at BNP Paribas (Xetra: 887771 - news) .

"The wage data yesterday re-ignited expectations that the Bank of England would have to raise rates soon, because the amount of spare capacity has started to shrink."

Investors were now expecting the BoE to begin raising rates in May, Sneyd said, after betting on August before Wednesday's wages data. BNP Paribas expects a first rise in February.

Against the BoE's trade-weighted basket, sterling rose to 93.1, its strongest since July 2008. It dipped 0.2 percent to 71.71 pence per euro.

On Wednesday evening, BoE policymaker Kristin Forbes said the next move in UK rates would be up and that it would come in the "not-too-distant future", as wage growth accelerates.

Some strategists say sterling is also functioning as a kind of safe-haven currency, as investors worry that Greece and its creditors will fail to reach a deal, leading a default and "Grexit" from the euro.

"It's hard to quantify in any specific manner ... but we have seen sterling act as a safe-haven currency before," said Neil Mellor, a currency strategist at Bank of New York Mellon. "The fact that it has always been seen as a proxy for euro zone exposure is why it's attracted this moniker of 'safe haven'."

"It's a highly liquid currency ... and the UK is not doing badly, relatively speaking, so it's like a substitute dollar, if you like, particularly at the moment, when the Fed seems to be equivocating more than the Bank of England."

[apetley]

Pity it's not a 7 year high against the bht.

[Chivas]

7 month high, not 7 Years !!

July 2014 Sterling was $1.71 so how $1.5930 is a 7 year high is anyones guess

Have just done a check against a basket of other Currencies and we're nowhere near 7 year highs either

Edited June 19, 2015 by Chivas

[Pib]

The report talks two different exchange rate comparisons. 1) a "trade-weighted" basket of currencies, and then 2) rate against the USD. Since they are talking two different animals here we could indeed have the highs the report talks about.

For the pound trade-weight basket of currencies the Euro has the greatest weight (60%) and the Euro has dropped a lot in value so it could very well be a 7 year high when talking the trade-weighted value.

http://www.economicshelp.org/blog/glossary/trade-weighted/

[Pib]

Yea, the report is right regarding the 7 year high trade-weighted (i.e, Effective Exchange Rate). See below BOE weblink and snapshot which shows mid 2008 as being the last time the trade-weighted sterling index was as high as now.

https://www.quandl.com/data/BOE/XUMABK67-Effective-Exchange-Rate-Index-Sterling-jan-2005-100

[rijit]

Tbh Still dont see 53 tbh as particulary high or good

rijit

[huawei]

Tbh Still dont see 53 tbh as particulary high or good

rijit

Why not?

[swampdonkey]

Tbh Still dont see 53 tbh as particulary high or good

rijit

It is not that long ago it was low 40

[rijit]

Tbh Still dont see 53 tbh as particulary high or good

rijit

It is not that long ago it was low 40

Or that long ago it was.70

rijit

[mikebell]

'Or that long ago it was.70 '. Happy days! I bought my house/car @ 73 to UKP.

[dirtycash]

time to make a TT i think .

[mommysboy]

In the last 11 ears its lowest and highest have been approx. 45 and 75. So 53 doesn't feel good.

[mmh8]

I think Europe in general is in the process of recovering from the 2009 economic crisis, its good GBP is getting back to strength just as the next cycle hits .....

I forecast a big drop coming up in next few months and this new high is the peak

Edited June 29, 2015 by mmh8

[apetley]

If UK interest rates rise later this year, as forecast, then Sterling is likely to rise rather than fall.