Sterling rallies, rate futures point to BoE hike before year end

LONDON, June 13 Fri Jun 13, 2014 2:55am EDT

LONDON, June 13 (Reuters) - Sterling soared to 1-1/2 year highs against the euro on Friday while interest rate futures pointed to the first policy tightening in the UK before the end of the year after hawkish comments from Bank of England Governor Mark Carney.

Carney said on Thursday that interest rates could rise sooner than financial markets expect, in a surprisingly stark warning that monetary policy may start to tighten in less than a year.

The euro fell to 79.87 pence, down 0.22 percent on the day, and its lowest since November 2012.

The pound was up 0.3 percent at $1.6988, its highest since May 6 when it hit a high of $1.6997.

Short sterling futures fell across the strip <0#FSS:> pricing in the first hike by December.

The sterling overnight interbank average curve (SONIA) was also pointing to a chance of a rate hike by the end of the year, compared with the first quarter of 2015 on Thursday.

That is at least six months before the U.S. Federal Reserve is expected to tighten policy and contrasts with the European Central Bank, which cut rates last week and is likely to ease policy in the coming months. (Reporting by Anirban Nag and Patrick Graham, editing by Nigel Stephenson)

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