GBP Off as Carney Plays Down Rate Hike Chances

It’s shaping up to be another rather quiet session on Tuesday, with US futures pointing marginally higher and the economic calendar very light on notable releases.

Sterling Slips on Carney Comments at Mansion House

The focus remains broadly on the UK, which began negotiations with the EU on its exit on Tuesday, while we’ve also heard from Chancellor Philip Hammond this morning as well as Bank of England Governor Mark Carney, both of whom spoke at the delayed Mansion House dinner in London.

Sterling is coming under pressure again on Tuesday after BoE Governor Mark Carney defended the need to resist raising interest rates, despite three policy makers voting to do so at the meeting last week. Rising inflation is clearly a concern among certain policy makers, having risen to 2.9% last month which is well above the central banks 2% target, but Carney was keen to stress that other factors have to be considered.

EUR/USD – Euro Subdued as German Inflation, Eurozone Current Account Disappoint

Prior to last week’s meeting, markets had not anticipated a rate hike until at least 2019, prompting the pound to rally after the announcement. While the move was quite sharp, it hasn’t developed into anything more which would suggest investors are very much on the same page as Carney who argued that against the backdrop of anaemic wage growth and mixed consumer activity and business investment, it would not be appropriate to raise rates. This may mean tolerating higher inflation in the short term but under the circumstances, I think this remains the most suitable and likely response.

GBP Vulnerable Even as Both Sides Strike Friendlier Tone

With Brexit negotiations now officially underway, it will be interesting to see whether sterling remains as vulnerable to the constant flow of updates and commentary, especially given the friendlier tone that both sides adopted on day one. Perhaps all the fighting talk of the last year was just simply both sides positioning themselves ahead of difficult negotiations and now they’ve actually started, things may become a little quieter on that front. Still, it’s very early days and should the talks turn nasty, I wouldn’t be surprised to see both use the media to vent their frustrations which could be bad for the pound at times.

Russia Warning Ignored By Commodities Markets

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.