FX Roundup: Pound hits another low on Carney's comments

The dollar endured mixed fortunes on Tuesday, while the pound fell to a fresh five-and-half year low on Bank of England Governor Mark Carney’s comments that there was little need to raise UK interest rates at the moment.

At 1616 GMT, the pound was down 0.59% versus the dollar, changing hands at $1.4159, already lower on ‘Brexit’ risk trades and fears of a cooling British economy, when Carney noted that risks the BoE was facing were different to those of the US Federal Reserve.

In front of an audience at Queen Mary University, London, the Governor opined that cost pressures stateside were stronger than in the UK, rising well above their historical averages. On top of that, the UK economy was twice as open as America's, leaving it more exposed to economic weakness in the rest of the world and so-called pass-through effects from a stronger currency.

Earlier, the UK consumer price index increased 0.2% year-on-year in December, as expected by analysts, compared to 0.1% in November, the Office for National Statistics revealed. A jump in airfares last month was offset by another slump in oil prices.

Core inflation, which excludes volatile items such as fuel and food, rose 1.4% year-on-year in December, following a 1.2% increase in November. Analysts had pencilled in a 1.2% increase.

Elsewhere, the dollar was up 0.32% against the yen changing hands at JPY117.70, while the euro rose 0.07% against the greenback exchanging at $1.0900. Continuing with major crosses, the dollar fell 0.18% against the Swiss franc changing hands at CHF1.0035.

Simon Smith, chief economist at FXPro, said, “Both the ECB and BoE are expecting headline inflation to rise substantially in the early months of 2016 as the effects of the fall in energy prices a year ago fall out of the calculation (base effects, as they are called), but for both this rise is likely to be less than expected given the latest oil price developments.”

Meanwhile, major commodity linked currencies were in positive territory. The greenback fell 0.33% versus the Canadian dollar changing hands at CAD$1.4512, while the Australian dollar rose 0.86% against its US counterpart exchanging at US$0.6925. The New Zealand dollar rose 0.50% exchanging at US$0.6484.

Kit Juckes, head of forex at Societe Generale, said, “There may be another chance for shorting NZD/JPY or GBP/JPY if we get sizeable enough bounces in the next day or two, and I may start getting a bit of traction in short CHF/SEK, a trade I like but which is doomed to be slow-moving.

“Short NZD/CAD too, should have a good day, though the decision on Bank of Canada's policy tomorrow is pretty finely-balanced. I'm hoping for no change, which isn't quite the same thing as being confident they'll resist the urge to ease.”