LONDON: Sterling rose against the dollar on Monday, helped by comments from a Bank of England policymaker who said British interest rates could rise sooner than many people expect.
Monetary Policy Committee member Kristin Forbes told the Wall Street Journal that if inflation rebounds strongly from its current decline, rates might have to increase sooner than people are currently expecting.
Interest rate markets suggest that the BoE is likely to tighten policy only in mid-2016. Investors have steadily pushed back rate hike expectations as economic growth has moderated and British inflation has fallen to decade lows.
That has allowed the BoE to keep rates lower for longer and seen sterling suffer in the past few months. But the latest comments helped revive demand for the pound, traders said.
Sterling was up 0.15 percent against the dollar at $1.5015 . It was slightly lower against the euro at 74.90 pence, having hit a seven-year high of 74.06 pence earlier in the day.
The single currency had earlier fallen to an 11-year low against the dollar of $1.1098 after anti-austerity party Syriza swept to victory in Greek elections. That could set Athens on a collision course with international lenders and threaten Greece's place in the euro zone.
Bearish sentiment towards the euro has picked up after the European Central Bank announced its first programme of outright money-printing of more than a trillion euros. That was bigger than expected and was in contrast to the BoE, which is expected to tighten policy.
That should allow any bounce in the euro to be temporary, traders said.
"Sterling will continue to outperform against the euro, despite some political risks in the UK horizon," said Chris Turner, chief currency strategist at ING. "It has already hit out year-end target of 74 pence (per euro) and we will be revising our forecast downwards."
A number of banks have been lowering their euro/sterling forecasts with UBS the latest to join.
"We adjust our three-month euro/sterling forecast to 75 pence (from 77 pence previously) to reflect a larger than expected quantitative easing programme from the ECB," analyst Geoffrey Yu said in a note. Sterling could gain if front-end UK rates continue to price in chances of a rate hike, he added.
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