Two central banks, One message
Yesterday the new Bank of England governor, Mark Carney conducted his first monetary policy decision in his first week in the role. Carney began without any big changes in policy by maintaining the Bank Rate at 0.5% and the QE stimulus programme at £375bn. However, the accompanying statement was fairly dovish (meaning generally supportive of lower interest rates) stating that recent data was in line with its May forecasts. The BoE is set to reveal more about how forward guidance could work in its August inflation report. Carney stated the report would have “an important bearing” on the MPC’s policy discussions in August. The fact that the BoE released such a statement was a change from the norm in itself; typically they only release the technical decisions on rate day with the minutes being released two weeks later.
Likewise in the Eurozone, the ECB also opted for no change in current policy and rates. This was also accompanied by a dovish statement from President Draghi, indicating interest rates would remain “at present or lower levels for an extended period of time”. This is the first time the ECB has offered any forward guidance, however, Draghi did not elaborate on what “extended period” meant.
The dovish statements from the MPC and ECB saw the US dollar make big gains against both Pound and the Euro. GBP/USD fell over 2 cents to a one month low of $1.5054 while EUR/USD fell below the $1.29 level to $1.2882.