Bank of England move lifts sterling

The pound is up 0.7% against the US dollar after new governor Mark Carney reaffirmed the Bank of England's monetary policy.

The pound jumped against the US dollar after Mark Carney said the Bank's monetary policy will stay in place until the UK unemployment rate falls. Mr Carney mentioned 7% as a threshold level but the long-term target is much lower than that.

Traders were worried Mr Carney would discuss increasing the stimulus package and that is why the pound initially dropped once the meeting began; however it quickly rallied after Mr Carney pegged the stimulus package to the level of unemployment.

In recent weeks the UK has announced strong economic indicators, such as within the services and construction industry. If that trend continues we could see the pound trade higher, as the Bank is more likely to cut back on its bond-buying scheme.

Yesterday the pound slipped versus the dollar after Dennis Lockhart of the US Federal Reserve stated its stimulus package could be tapered before the end of the year. The bond-buying scheme could even be trimmed as early as next month. If the US economy recovers at a faster rate than the UK economy, we could see the pound fall versus the US dollar.

Spot FX GBP/USD chart

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