FX round-up: Loveless sterling southbound as Carney jawbones on rates

Sterling resumed its ride lower again on Tuesday after Bank of England governor Mark Carney said now was not the time to raise UK interest rates.

His jawbone moment came during a speech in central London this morning. Last week, BoE policymakers were more hawkish than expected in holding interest rates and QE unchanged.

All of this was set against the fabric of rising UK inflation, which was outpacing wage growth and amid signs of falling consumer confidence and economic malaise. Brexit talks were also underway, adding to jitters on sterling's outlook.

At 17:03 BST, sterling was down 0.89% to $1.2924, and down 0.7% to €1.1347. It was lower against commodity currencies, and the yen, too.

"The drop has seen sterling unravel gains made last week after three members of the Bank of England voted to lift interest rates," said Jasper Lawler at London Capital Group.

"The question for the direction of UK interest rates is whether other MPC members are emboldened by the three dissenters or fall in line behind the dovish governor," he said.

"We think GBPUSD at sub $1.30 levels assumes a rate cut or more QE, and slowing consumption notwithstanding, that doesn't look very likely."

David Madden at CMC Markets UK said that even though UK inflation was at 2.9%, Carney had described it as subdued.

"The high CPI number is partially because of the weak pound, but I suspect Mr Carney is ignoring CPI figure so he can keep monetary policy loose, just in case Brexit talks turn sour.

"Mr Carney doesn't want to flip flop on interest rates, and he would rather avoid hiking them now, just in case he needs to cut them again down the line."

Neil Wilson at ETX Capital said ratings agency S&P piled yet more pressure on sterling by saying it did not need to wait for Brexit to downgrade the UK.

"Whatever way you cut there isn't much love out there for the pound at present. As Brexit talks start, the mood music is sounding gloomier for the UK."

Meanwhile, the dollar-spot index was up 0.27% to $97.813 as the greenback enjoyed a mostly positive session on key crosses. It rose 0.25% to $0.8992.

"The EURUSD is lower today as the US dollar powers ahead. The words of Federal Reserve member William Dudley still ring out from yesterday," said Madden.

Dudley had stated that he was not paying too much attention to what was going on in the US government bond market.

"The Fed member signalled that the US central bank will press ahead with their monetary tightening plan, even if the US government bonds market doesn’t think they will be as aggressive in their hiking as they are letting on."