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Carney’s BOE Looking a Little More Hawkish

Posted by WorldWideMarkets . on Jul 18, 2013 3:39:00 AM

sterling tradingThe BOE minutes showed a consensus 9-0 vote to leaving the current QE at 375 billion pounds which bodes well for the policy setting committee under new Governor Mark Carney. More importantly most members seem of the opinion not to exit or taper stimulus too soon. But there is also a hint under Carney that there will be no additional stimulus.

Labor market data is improving and while Carney can’t take any credit for improvements based on past policy, he is going to make his mark by being ready to take back stimulus as the economy recovers. Positive sentiment sent the pound to a two week high against the dollar. That sentiment has also prompted a rise in one-month risk reversal to -0.788 from -1.45 two weeks ago. But a negative risk reversal still indicates that the volatility of call options, the right to buy,  is less than the volatility of similar puts, the right to sell, implying more investors are betting on a fall on the currency than a rise over the next month. The pound is still looking fragile.

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