Sterling hits new seven-year high against Euro following hints of interest rate hike

 

The UK’s pound jumped more than one per cent against the euro today to €1.36, reaching its strongest level since January 2008 after the Bank of England hinted it could lower interest rates in the next few months.

 

The seven-year high for sterling against the eurozone currency came after minutes from the Bank of England’s monetary policy committee (MPC) said interest rates could rise later in the year, with the unanimous decision to hold at 0.5 per cent “finely balanced”.

 

Data which revealed strong wage growth and the unemployment rate falling to a six and a half year low also spurred hopes for a rate hike. Unemployment rate fell to 5.7 per cent between October and December.

 

In contrast to the BoE, the European Central Bank has kept its interest rate rooted at a record low of 0.05 per cent and is embarking on a €1.1trn (£810bn) quantitative easing scheme.

 

The pound has not traded near €1.36 since before the financial crisis.

 

However, despite the MPC’s hawkish outlook, the minutes did discuss the possibility of dropping rates below 0.5 per cent if inflation turns out weaker than expected. 

 

The UK inflation rate is expected to drop below zero at some point this year.