Carney statement lifts sterling

The pound traded higher versus the US dollar after Mark Carney confirmed that UK interest rates will rise once unemployment drops.

The pound was trading at a two-week low against the US dollar just before the Bank of England governor made his statement, but soon came off its lows.

Mr Carney is using 7% as an unemployment target but that is not to say rates won't be increased before the UK jobless rate drops to 7%. Over the past few months UK economic indicators have signalled an upturn in the economy, so further positive economic updates could help push GBP/USD higher.

Mr Carney’s decision to link the Bank’s monetary policy to the unemployment rate is similar to that of the US Federal Reserve. The Fed has said that tapering of its stimulus package could start between now and the end of the year. As the current bond-buying scheme is restricting the strength of the US dollar, fresh tapering rumours could see also the pound decline versus the dollar.

Spot FX GBP/USD (DFB) chart

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