Carney walking the (non-political) tightrope
Mark Carney will be testifying before MPs this morning. Market participants will be anxiously awaiting his thoughts on the latest Brexit developments and on how the Bank of England (BoE) may tackle this event risk. The BoE is planning a post-Brexit liquidity injection to stop a 2008-style run on the banks, although we shouldn’t expect too many details on contingency plans “for fear that they will become self-fulfilling”.
Carney will have to maintain a cautious tone as the BoE must be neutral to political events, and others have already paid the price for airing personal views (like John Longworth, ex-BCC chief). For the last seven years interest rates have been at 0.5% and the current low inflation, low wage growth environment would suggest that talk of rate hikes would be deferred until after the EU Referendum.
The US Dollar continued to weaken across the board during the American trading session yesterday afternoon and Cable rose to fresh two-week highs. With no US data of note released trading was comparatively light yesterday. GBPUSD had opened at 1.4218 and despite some Dollar strength in the morning, the pair reversed that trend and rose over 1% from its daily lows to close the day at 1.4265.
EURUSD followed a similar pattern, as the pair opened at 1.0992 and found support at the 1.095 level in the morning session. However, the Dollar weakened over the remainder of the day to finish at 1.1014.
The Eurozone has had a positive start to the day today ahead of the GDP data due for release at 10am. Not only did the French trade balance come in better than expected at -3.7 billion, but German industrial production increased by 3.3% throughout January. This is an unexpected surge from the -0.3% figure seen for December and January’s data marks a nine-year high, providing a somewhat positive perspective coming into Thursday’s European Central Bank meeting. The effect on the market will be muted until the more important GDP data is released, however.
The Economic and Financial Affairs Council configuration (ECOFIN) monthly meeting also occurs today, with key economic policies from 28 member states being discussed. Anything revealed in the meeting may give clues on the aggressiveness of Thursday’s long-awaited policy announcements.
Data to watch: 9.15am Mark Carney Speech. 10am EUR GDP Q4 Year on Year & Quarter on Quarter.