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Mark Carney lEVITATES THE pOUND

Posted by Joseph Trevisani on Jun 28, 2017 3:51:26 PM

The British Pound soared against the dollar by the most in two months as the Governor of the Bank of England, Mark Carney, implied that the bank may need to curb its monetary stimulus.

Speaking at the ECB Central Banking Forum in Sintra, Portugal Mr. Carney said:

"Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventionalThe extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations. These are some of the issues that the MPC will debate in the coming months."

Sterling rose against all of its  major trading partners except one and the return on Gilts jumped with the two-year reaching its highest yield in over a year. 

The market was taken by surprise by Mr. Carney's remarks as then seemed to reverse his stance from last week when he said at a speech in the U.K. that ‘now was not the time for [rate] tightening.’

 The pound was 1.2 percent higher against the U.S. currency on Wednesday, trading at 1.2924 (3:10 pm) having been as high at 1.2972. It was just under one percent ahead versus the euro (0.8800, 3:30 pm). Today's surge was the sixth in a row for the sterling against the dollar and biggest gain for the pound since its run of 2.2 percent on April 18th, the day that Prime Minister May called for the recent snap election. At the time Ms May and the Conservatives had been expected to expand their majority in the House of Commons. 

 Since closing on June 20th at 1.2629 the pound has gained 2.4 percent against the dollar. It is essentially flat against the euro, finishing at 0.8813 on the 20th and trading at 0.8803 as this is written. The main difference being the euro's 1.4 percent gain against the dollar yesterday on ECB President Mario Draghi's unexpectedly hawkish remark at the same conference where he said, “The threat of deflation is gone and reflationary forces are at play."

The yield on the 10-year Gilt climbed as much as 11 basis points to 1.20 percent, the highest since May 10th, before falling back to 1.15 percent by late afternoon in New York. Two year yields rose as much as 7 points to 0.34 percent. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters

 

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