GBP rally following Carney comments
13/Jun/2014 • Currency Updates•
London closed with sterling clocking fresh gains across the board.
Carney speaking at Mansion House led the charge with a sudden and sharp change of tone over the likely timescale of an IR hike. Previously the governor had indicated an IR hike was not on the cards till early next year and anticipation of the move was widely priced into the market. Comments last night were a radical sidestep from these predictions with the governor stating there was a possibility of a change in IR this year.
This is the second time on the bounce that Carney has moved the goalposts on the likely timescale of an IR hike. This exemplifies the greater use of forward guidance amongst the Bank of England. More importantly it shows the speed of the UK recovery continues to surprise to the upside.
The move caught traders on the back foot and left many scrambling to punt sterling leading to a rally across the board. Notably cable which continues to hover around a 5 yr. high. The Asian session has seen sterling well supported and London opens with plenty of sterling support.
London closed with the euro taking losses against sterling but nudging up a little against the dollar. Regardless the euro remains under substantial pressure and the short term outlook is choppy. The rise in industrial production holds a parallel with noises that the Eurozone may see a stronger rate of growth in Q2 – a view supported by positive business surveys and good retail sales last week. However the recovery is still expected to be modest and uneven. Alongside alterations in monetary policy, last week saw the ECB lower their forecasts for growth this year to 1%, from 1.2% in March. They also lowered forecasts for inflation in coming years, aiding the banks decision to cut its key interest rates and provide fresh funds to banks, in a move that is designed to be passed on to business in an effort to boost growth.
The euro gained a little support this morning following German and Spanish CPI coming in line with expectations. Eurozone trade balance and employment change is also set for release today.
London closed with the dollar edging up against fortnightly lows against the yen in Asian trading, however it remains subdued as conflict in Iraq and downbeat US economic data gave investors no reason to believe the Fed will be raising IR anytime soon. Presently against the euro it is trading at a quarterly high with chatter over room for further topside movement.
The greenback reversed against sterling yesterday following Carney’s comments last night. Right now traders are mostly staying away from weighty dollar positions as they await the outcome of the Fed meeting next week.
No data of note today.