Sterling made rampant gains across the board yesterday in response to comments from Bank of England Governor Mark Carney suggesting that some monetary stimulus could be removed in the foreseeable future.
Pound Sterling Surges as BoE Governor Suggests Interest Rates Could Rise
Speaking at the ECB forum in Sintra, Portugal, Carney indicated that if domestic growth and wages began to increase then ‘some removal of monetary stimulus is likely to become necessary’.
The statement was significantly less dovish than his Mansion House speech a week previously, in which he argued that now was not the time to start hiking interest rates. Demand for the Pound flourished as a result.
Although the comments marked a hawkish shift, the Governor intimated that he would wait to see whether an anticipated rise in business investment would offset the predicted slowdown in consumption. This suggests that we are closer to, but still some way off, an interest rate hike from the UK central bank.
GBP/EUR Rallies 70 Pips as ECB Source Suggests Period of Low Rates
The single currency lost some support yesterday due to remarks from a source at the European Central Bank insisting that markets had got carried away with ECB President Mario Draghi’s comments on Tuesday – after which the Euro strengthened. The sources explained that Draghi intended to signal a tolerance of weak inflation, not an imminent policy tightening.
The Pound to Euro exchange rate rallied by over 70 pips yesterday as markets responded positively to BoE Governor Mark Carney’s latest statements on monetary policy.
Following a botched attempt at forward guidance in the past – whereby Carney set an unemployment target for a rate hike, but left rates on hold when joblessness plunged way below that target – the Governor was compared to an ‘unreliable boyfriend’. Given that over the past week his policy statements have painted starkly different pictures of the interest rate story, one could also label Carney an unreliable narrator.
GBP/USD Exchange Rate Strikes Three-Week High
‘Cable’ jumped over a cent yesterday to strike a three-week high as hawkish rhetoric from the Bank of England bolstered rate hike bets and propelled the Pound higher against the US Dollar.
Sterling’s strong performance marked the biggest intraday gain since Theresa May called a snap election midway through April and the Pound now appears to be on a bullish run against the ‘Greenback’ with five daily gains in the past six days.
If US data continues to disappoint then technical trading patterns could pave the way to additional GBP/USD gains. However, the Federal Reserve maintains a hawkish outlook, meaning any upbeat ecostats could lead to a swift turnaround in demand for the US Dollar.
Pound to Canadian Dollar Exchange Rate Flat Thanks to BoC Governor
The Pound failed to register any lasting gains versus the Canadian Dollar yesterday, with Sterling’s BoE boost equalled by hawkish comments from Bank of Canada Governor Stephen Poloz.
Speaking in Sintra, the BoC’s Poloz said ‘it does look as though [the] cuts have done their job’, hinting that the central bank could be on the verge of raising interest rates in the near future. The ‘Loonie’ surged across the board following the speech.
Pound to Australian Dollar Exchange Rate Dips from 3-Week High
Sterling strengthened by around 150 pips versus the Australian Dollar yesterday following BoE Governor Mark Carney’s latest shift in rhetoric. The Pound reached a three-week high but then proceeded to give back some of the gains as traders locked in profit from the earlier peak.
Pound to New Zealand Dollar Rallies on BoE Rate Hike Bets
The Pound to New Zealand Dollar exchange rate appreciated by around 80 pips to strike its highest level for over a fortnight yesterday. The hawkish BoE boost was the main story of the day as there were no key economic releases related to the ‘Kiwi’ Dollar.
Data Released
09:30 GBP Mortgage Approvals (MAY)
13:00 EUR German Consumer Price Index (YoY) (JUN P)
13:30 USD Gross Domestic Product (Annualized) (1Q T)