Carney’s remarks hit Sterling

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21 June 2017

thomasdodds

During Mark Carney’s speech in front of London’s banking community, the Governor of the Bank of England made a significantly dovish statement. According to him, now is not the time to raise rates.

C
arney pointed out that “monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU.” Carney clearly wants to stamp out any speculation of potential interest rate hikes being on the way after three out of eight MPC members voted to immediately hike interest rates last week. Carney stressed that in the coming months he would like to see the extent to which weaker consumption growth is offset by other components of demand.

The other theme of the day was a continuation of the US Dollar rally on the back of further hawkish comments from the FOMC members. Boston Fed president Rosenberg warned about the risks to financial stability from keeping rates too low. In the absence of significant macroeconomic news, traders used this hawkishness as an excuse to send the Dollar higher against all G10 currencies except the New Zealand Dollar.

Today should be relatively light in terms of macroeconomic news, after Carney’s testimony it might be worth taking a look at BoE’s Haldane speech at midday. Late at night the Reserve Bank of New Zealand June decision is due. We expect no change in rates and a stern warning against excessive currency strength after the sharp rally in the Kiwi since the May statement.

The Dollar ends higher despite neutral comments from FOMC officials

Yesterday’s comments from the Federal Open Market Committee members were neutral to hawkish. During his visit in Amsterdam, Eric Rosengren emphasised on the risk that are associated with maintaining low-interest environment. In his view such environment poses financial stability issues and make it harder to fight future recessions. It seems like FOMC remains mostly optimistic, with just one member, Evans, calling for very gradual rate of monetary tightening. Today we await existing home sales numbers out from the US.

Euro falls to the lowest level in three weeks versus the Dollar

In the absence of any new significant releases, the common currency continued trending downwards, falling to its lowest level since the end of May. Euro did, however, bounce on Sterling’s weakness and ended the day appreciating versus the Pound and some of its European peers

Wednesday should be very quiet in terms of macroeconomic data from the Eurozone, investors will take interest in events elsewhere while awaiting new PMI prints expected on Friday.

RNBZ expected to hold rates steady

The Reserve Bank of New Zealand is expected to remain the official cash rate at 1.75 percent. Investors will be watching for any potential comments regarding recent NZD strength and the potential for future rate hikes in a context of disappointing recent economic growth and significant NZD appreciation that will likely not be welcome by the RBNZ.