The dollar was mixed Wednesday, rising sharply against the sterling amid speculation the Bank of England’s warning on deflationary risks will keep U.K. interests low for an extended period.
The BoE warned that U.K. price growth is likely to fall below 1 percent over the next six months. This is well below the BoE’s 2 percent target and where it expected inflation would be three months ago.
Underscoring their pessimism, the central bank now expects anemic levels of inflation for the next three years.
Markets that once figured the BoE would raise interest rates early in 2015 are now expecting policy makers to hold of until much later in the year.
The dollar rose almost 2 cents to $1.5780 versus sterling, its highest in more than a year.
Relatively upbeat economic news from the euro zone held the dollar in check near $1.24 versus the euro, not far off last week’s 2-year peak of $1.2360.
Eurozone industrial production grew in September from a year ago, defying expectations for a second consecutive decline, preliminary figures from Eurostat revealed.
Industrial production grew 0.6 percent year-on-year following a 0.5 percent slump in August, which was revised from 1.9 percent decline.
The dollar eased from yesterday’s 7-year peak above Y116 versus the yen, settling near Y115 in choppy trading.
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota this afternoon repeated his belief that the U.S. central bank should not increase interest rates next year given the fragile nature of the economic recovery.