Pound slides after BoE Governor Carney talks down interest rate hike

  • All posts
    All posts|Currency Updates
    All posts|Currency Updates|International Trade
    All posts|In The News
    All posts|International Trade
    Charities & NGOs
    Currency Updates
    Currency Updates|In The News
    Fraud
    In The News
    In The News|Press
    International Trade
    Press
  • Latest

20 April 2018

thomasdodds

Sterling sank by around one percent following London close yesterday after Bank of England Governor Mark Carney talked down the possibility of another interest rate hike in the UK next month.

S
peaking with the BBC, Carney claimed that recent data had been ‘mixed’ and that policymakers would be ‘conscious [at next month’s meeting] that there are other meetings over the course of the year’. He also acknowledged that there would be differences in opinion among the committee next month, suggesting that the MPC could hold off from raising when it next meets. Financial markets are now pricing in just a 50% chance of a rate increase in May, having been pricing in a close to 90% chance at the beginning of the week.

Carney’s dovish comments follows a particularly poor week of UK economic data. The latest earnings, retail sales and inflation figures have all fallen short of expectations, the latter probably the most meaningful given its more significant impact on monetary policy. Sterling has now fallen to around the level it was at the beginning of the month.

MPC member Michael Saunders, one of the more hawkish members of the bank’s rate setting committee, will be speaking in the UK morning, although his views are likely to be overshadowed by Carney’s comments yesterday evening.

Dollar rises after bump in US Treasury yields

A sharp increase in US Treasury yields provided some decent support for the US Dollar yesterday. 10 year government yields rose above 2.9% after more talk of denuclearisation in North Korea and encouraging US data. Jobless claims data came mostly in line with expectations, while the Philly Fed survey rose to an above forecast 23.2 from 22.3.

The EUR/USD rate subsequently failed in its attempt to break above the 1.24 level for the fourth consecutive day, likely due to a significant amount of options in place to defend the level. Eurozone macroeconomic news has been fairly light this week, with current account data not enough to provide the impetus Euro bulls are looking for.

With no real major announcements scheduled in the Eurozone today, investors will have one eye on next Thursday’s European Central Bank meeting. We expect the ECB to maintain in fairly cautious stance with regards to future policy tightening, given the recent weak inflation and PMI data out of the Euro-area. Investors will be looking to President Draghi comments over the possibility that the bank could hint in the summer that it is ready to end its QE programme at some point later in the year.