Mark Carney Helps Pound Sterling "Realise Some Upside Potential"

Above: Bank of England Governor Mark Carney to appear before lawmakers. Image © UK Parliament, Pound Sterling Live.

- British Pound firms vs. Euro

- But broader US Dollar rally keeps GBP/USD under pressure

- Carney hints he is going to lengthen his term

Bank of England Governor Mark Carney has confirmed he is seriously considering extending his term as Governor in order to oversee a smooth Brexit transition and an announcement on the matter will be made in due course.

The comments were made at an appearance before UK lawmakers where the central bank governor also confirmed the UK economy's current growth trajectory is consistent with the forecasts held at the Bank.

The developments prove support to Pound Sterling which suffered a torrid start to the week amidst a fresh bout of Brexit-related fears as well as concerns the UK economy might be slowing down once more following the release of two under-par economic data releases.

Carney was joined in front of parliament's Treasury Select Committee by fellow Monetary Policy Committee members Andy Haldane, Michael Saunders and Silvana Tenreyro.

"The lawmaker committee certainly did not shy away from asking tough questions of Carney and his colleagues as the session was unsurprisingly dominated by Brexit, but the trio of Central Bankers highlighted that no-deal Brexit risks are yet to have any material impact on the economy just yet, which has helped Sterling to realise some upside potential," says Felix Blom, currency analyst at OFX.

Carney told the Committee that we could see positive momentum for GBP if there is a Brexit deal, warning too that GBP would move in opposite direction if no deal was achiweved.

At the time of writing the Pound-to-Euro exchange rate is quoted a decent 0.33% higher on the day at 1.1155. It had been as low as 1.1064 earlier.

The Pound-Dollar exchange rate is however subject to the broader push higher by the Greenback. The pair is seen at 1.2833 on the interbank market.

Carney's tenure at the helm of Threadneedle Street was supposed to last for six of his seven year term but a push by the UK Treasury to have him serve the full term were reported by the London Evening Standard on August 29.

The Treasury is keen for him to stay on until 2020 so that he can provide continuity during the turbulence of Brexit.

"Even though I have already agreed to extend my time to support a smooth Brexit, I am willing to do whatever else I can in order to promote both a smooth Brexit and an effective transition at the Bank of England," Carney told lawmakers.

With Bank of England policy being a central driving force behind the British Pound there are understandably questions as to what it might mean for the value of Sterling both immediately, and longer-term, should Carney stay.

"Not that it is the main driving force for GBP, but UK rates and GBP would be indifferent / mildly supported by Carney staying on. Continuity & less policy uncertainty would be a good thing in 2019 if a 'no-deal' Brexit is avoided" says Viraj Patel, an analyst with ING Bank N.V.

The Pound has struggled on a string of bad news since the week begun, these include   disappointing manufacturing PMI data, domestic political risks and the trashing of Prime Minister May's Brexit plan by the EU’s Chief Brexit Negotiator Michel Barnier.

"However, today’s hearing gave a positive outlook for the UK economy despite the increasing likelihood of Britain crashing out of the EU without a deal, and the Bank of England has reiterated that its current forecast for growth and inflation is consistent with gradually rising interest rates," says OFX's Blom.

The testimony also revealed the Bank believe there are upside risks to a Brexit deal and markets & businesses expect a deal on Brexit.

Policy-setters do however concede acknowledge there will be a lot of headlines between then and now which will keep markets anxious.

The message on future interest rate moves meanwhile remains the same' that limited and gradual rate hikes are still needed to keep inflation on target, assuming economy grows as expected.

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