Carney fails to hold back the pound
Yesterday The Bank of England Governor, Mark Carney, failed to convince the market that the BoE will keep interest rates at all-time lows for the foreseeable future.
In Carney’s first policy speech since he introduced forward guidance on August 7th, he sought to reaffirm the banks position that interest rates would not rise until unemployment falls to 7% (or below). In theory, this should have weakened GBP, as low interest rates equate to a less attractive investment in the currency. However, GBP actually strengthened by 0.4%. GBP has now strengthened 5% in the past six months, the best performer in the top 10 currencies. Whilst this is helping importers, it clearly has the reverse impact on exporters with many seeking to hedge against further increases in strength.
Today brings a raft of data from German unemployment and inflation data to US GDP. Late tonight we see James Bullard speak in the US. As an FOMC member the market will be listening carefully to see if any indicators regarding tapering are mentioned. As such, this speech has significant opportunity to move USD.