The Sterling Digest, 28 February 2015: en fuego

Sterling has staged big rallies across the board. Much of this new strength comes on the back of heightened expectations that the Bank of England (BoE) will increase interest rates even sooner than previously expected. As the market fully digests this new timeline in interest rate hikes, sterling has caught bid as traders buy in anticipation of tighter monetary policy.

While a big reason for the rally in sterling, monetary policy is not the only reason. Global deflation, due to the crash in oil prices, has caused other currencies to weaken considerably. As such, sterling has been able to rally to multi-year highs versus currencies like the Canadian dollar, the euro and the Australian dollar. Lastly, the sterling is catching bid as a safe haven currency. The discord between the the new Greek government and the rest of the European Union and continued manipulation by the Swiss National Bank in the francs markets, has traders piling into sterling as the only desirable European currency available. As long as these conditions continue to persist, expect sterling to continue to benefit on the long side in the medium term.

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