British rate hike hint
boosts sterling, Iraq unrest drives up oil
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[June 13, 2014]
By Marc Jones
LONDON(Reuters) - Sterling
surged on Friday after the Bank of England hinted at an
interest rate rise this year, while escalating violence
in Iraq drove oil to a nine-month high and dampened
European shares .FTEU3 were still on course for the ninth week of
back-to-back gains but opened in the red, with caution restored by
the unrest in Iraq and signs that, at least in some countries, the
era of record low interest rates is near an end.
Bank of England Governor Mark Carney said late on Thursday that
British interest rates could rise sooner than financial markets
expect, in a surprisingly stark warning that monetary policy may
start to tighten before the end of this year. Markets had previously
been expecting a rate hike in the first quarter of 2015.
That would make the BoE the first of the four major central banks to
raise interest rates.
The Bank of Japan stood pat on monetary policy as its chief Haruhiko
Kuroda stressed there was no chance of the bank quitting its
stimulus program before it is confident on inflation.
Sterling GBP=D4 GBPEUR= neared a five-year high against the dollar
on Carney's comments and hit a 1-1/2 year high of 1.25 euros GBPEUR=.
The gap between 2-year UK and German yields ballooned to its widest
in four years, reflecting how different BoE and European Central
Bank policies are likely to be in the coming years.
"The BoE seems to be slightly ahead of the Fed as far as rate hikes
are concerned," said Lutz Karpowitz, currency analyst at Commerzbank.
"Macro data is likely to attract particular attention over the
coming months. Anything pointing towards a possible rate hike would
then support the pound further."
Financial markets' focus was otherwise on the rising violence in
Iraq where Sunni Islamist militants have surged out of the north
this week to menace Baghdad and want to establish their own state in
Iraq and Syria.
President Barack Obama on Thursday threatened U.S. military strikes
in Iraq against the insurgents, who gained more ground overnight.
"I donít rule out anything because we do have a stake in making sure
that these jihadists are not getting a permanent foothold in either
Iraq or Syria," Obama said at the White House when asked whether he
was contemplating air strikes. Officials later stressed that ground
troops would not be sent in.
Oil drove sharply higher, with Brent crude LCOc1 slicing through
$114 a barrel to a fresh nine-month high and the market looking in
no mood to stop there.
U.S. crude CLc1 touched an intraday high of $107.68. Both benchmarks
are set to gain almost 5 percent this week, the biggest weekly rise
since July 2013.
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"There have been no disruptions to oil supplies so far but people
are very nervous," said Ken Hasegawa, a Tokyo-based commodity sales
manager at Newedge Japan.
In Asian trading the yen JPY= and gold XAU= both benefited from
their traditional safe-haven statuses. U.S. Treasury yields
US10YT=RR also sagged as soft U.S. data added to the renewed sense
of caution, a move mirrored by German government bonds too.
Weaker-than-expected U.S. retail sales and jobless claims data on
Thursday further tempered economic optimism felt earlier in the week
that had propelled Wall Street to record highs.
Taking its cue from an overnight slide in U.S. stocks, MSCI's
broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS
shed 0.3 percent. Tokyo's Nikkei .N225 swam against the tide to rise
0.9 percent, on hopes for news of a corporate tax cut and taking its
rise over the last three weeks to almost 9 percent.
Reaction was muted towards China's industrial output and retail
sales data, which rose in line with forecasts but were not solid
enough to show that the world's second-largest economy was on a
solid, broad recovery.
The dollar edged up 0.3 percent to 101.97 yen JPY= but was still
stuck near a two-week low of 101.60 hit on Thursday. On the week,
the dollar was on course to lose about 0.5 percent against the yen.
(Additional reporting by Anirban Nag; Editing by Susan Fenton)
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