FX round-up: Sterling gets a shove higher as Carney sees potential for rate rise


FX round-up: Sterling gets a shove higher as Carney sees potential for rate rise

Wed, 28 June 2017
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FX round-up: Sterling gets a shove higher as Carney sees potential for rate rise

(ShareCast News) - Sterling got a firm shove higher on Wednesday as Bank of England governor Mark Carney suddenly declared UK interest rates might need to be hiked.
His words took the appearance of a dove-turned-hawk, and the response in sterling was immediate and strong.

By 17:15 BST, sterling was up 1% to $1.2942 and up 0.71% to €1.1382. It was also up on the aussie, kiwi, rand and yen, but down on the loonie.

Carney's comments marked a big difference from those of last week, when he implied BoE would keep monetary policy loose as Brexit could turn out more challenging than first thought.

"Today's hawkish comments caught traders off guard and it sent sterling flying," said David Madden, market analyst at CMC Markets UK.

"The weakness in the pound has played a role in the UK's rising inflation and some strength could assist in keep CPI in check," he said.

Neil Wilson, senior market analyst at ETX Capital, issued a cautious assessment of Carney's comments, particularly as regards the cable.

"Upside may be capped in the near term as Mr Carney has not signaled that the Bank is ready to tighten, only that there is an active debate taking place within the MPC," said Wilson.

"There is a sense the MPC may wish to 'correct' its rate cut last summer in light of a surprisingly resilient UK economy and rising inflation, which is accelerating quicker than the Bank expected," said Wilson.

Meantime, Carney was far from being the only key central banker to take to the soapbox on Wednesday.

European Central Bank chief Mario Draghi today moved to clarify his remarks yesterday, which were interpreted by the market as hawkish.

Speaking from Portugal, Draghi let it be known that his Tuesday speech was misinterpreted.

This, said Chris Beauchamp, chief market analyst at IG, caused the euro to slump.

Madden continued: "Traders took the (Draghi) comments as a sign that the ECB would consider reining in its loose monetary policy, but today the central bank clarified the eurozone has some way to go before it will alter its policy."

Meantime, the greenback had a tough time on the crosses. The dollar-spot index was down 0.32% to $96.082.

"With the dollar already weakened thanks to Donald Trump's latest healthcare reform setback the pound found it easy to expand on its early growth," siad Connor Campbell, financial analyst at Spreadex.

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