Sterling rose against the US dollar on Monday and jumped against the Canadian dollar after the UK government announced Bank of Canada chief Mark Carney as its surprise choice for the top job at the Bank of England. Carney is perceived as a monetary policy hawk and a respected central banker overseeing a healthy financial and banking sector in Canada, and both those factors helped push the pound higher.
However, some said it was a knee-jerk reaction and sterling strength would be limited given the sluggish UK economy. The pound rose to $1.6032 against the dollar after the announcement, from around $1.6003 beforehand. It was last trading at $1.6015, down 0.1 percent on the day, and well below Friday's three-week peak of $1.6051. Traders reported bids around $1.6000, which may limit any drop and offers at $1.6050.
Sterling rose to C$1.5950 against the Canadian dollar, its highest since November 9, from C$1.5898 beforehand. "The implications on sterling in the near term are quite limited to the extent that he doesn't take up his post for more than six months," said Adam Cole, global head of FX strategy at RBC Capital Markets.
Many in the market had been expecting BoE Deputy Governor Paul Tucker to succeed Governor Mervyn King, who steps down next July, and Carney's announcement caught many on the wrong-foot. Against the euro, the pound fell to a one-month low on expectations that international lenders would soon agree a deal on aid for Greece. The euro was up 0.1 percent at 80.98 pence, having hit a one-month high of 81.085 pence struck on Friday. "The euro will remain supported, just on relief at the prospect of a Greek deal," said Richard Driver, analyst at Caxton FX. He said he may have to review his previous forecast for the euro to be below 80 pence at the end of the year.
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