Sterling Marks Two-Week High on McCafferty's Rate Hike Suggestion

The British pound rose to a two-week high against the US dollar on Tuesday, after one of the Bank of England’s (BoE) policymakers pushed for an interest rate hike decision in May.

The sterling climbed 0.3 percent to 1.4177 against a strong greenback, its highest since March 28. 

The currency has added more than 1.5 percent during the last three trading sessions. Market spectators said a break above the $1.4252 level would test the pound for a 2018 high of 1.4346 hit in late January.

The sterling was also higher by 0.05 percent to 1.1476 against the euro, as recent data and positioning appeared to be putting the euro under pressure.

Recent analysis from an investment firm stated that April is usually a sturdy month for the sterling, with dividend payments by UK businesses supporting it every April for the past 14 years.

Head of hedge fund sales Neil Jones said the British currency remains bid due to global circumstances, seasonal demand BoE policymaker Ian McCafferty’s comments.    

McCafferty Proposes another Rate Hike in May

The pound strengthened after the central bank’s hawkish official McCafferty urged his Monetary Policy Committee (MPC) members to raise interest rates at next month’s assembly.

McCafferty said they should not delay tightening policy modestly and that wage growth, which has hindered inflation for most of the past decade, may be stronger than several of his fellow MPC members believed. UK’s inflation rate has been running higher than BoE’s target.

McCafferty was one of the two policymakers on the nine-member MPC who voted for a rate hike in March.

BoE hiked rates for the first time in almost a decade in November, while the bank suggested that rates might need another raise in the coming months, possibly as early as May.

Markets also saw an 80 percent chance of an interest rate increase next month, and latest comments as well as strong home price data this week supported the prospect further.   

However, various analysis and poll suggested that positioning is already long, which may expose the market to a sell-off, provided a correction happens or data settles on the downside.   

Meanwhile, BoE chief economist Andy Haldane defended the use of the extremely low rates to trigger an economic recovery since the financial crisis.

He argued that UK’s gross domestic product (GDP) growth would be 8 percent lower and unemployment would be 4 percent higher without the monetary policy.

Haldane said MPC’s stimulus has brought in an additional of £9,000 to household incomes, with the gains mainly from the positive result of a looser policy at jobs and wages.

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