Sterling Rallies After Inflation Report

The Great Britain pound soared against its most-traded counterparts today after the release of the Inflation Report from the Bank of England. The sterling fell versus the Japanese yen but bounced and almost erased losses by the end of Thursday’s trading.
BoE Governor Mark Carney spoke at the press-conference regarding the Inflation Report, predicting a drop of inflation:

Inflation is at its lowest level since the introduction of Inflation Targeting two decades ago. It will likely fall further, potentially turn negative in the spring, and be close to zero for the remainder of the year.

Yet Carney was not worried about deflation predicting that consumer prices will return to growth after the initial decline:

The inflation forecast in today’s Report shows inflation coming back to the target within two years and then rising a little further.

That forecast assumes Bank Rate follows the path implied by market yields: gradual and limited increases over the forecast horizon.

The Governor was optimistic about Britain’s economic growth, thinking that falling oil prices should help the economy to recover:

The result of these underlying dynamics is that today’s projection for GDP growth is stronger than in November.

While Carney was talking about rising interest rates, he also stated that the BoE will not hesitate to cut the main interest rate to zero or to expand the asset-purchase program in case inflation remains low for a prolonged period.
GBP/USD advanced from 1.5237 to 1.5380 as of 23:00 GMT today, trading near the highest rate since January 2. EUR/GBP dipped from 0.7432 to 0.7410, reaching the low of 0.7371 intraday — the weakest level since December 2007. GBP/JPY was down from 183.43 to 181.05 intraday but rebounded to 183.20 currently.

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