Carney & Co. Maintain Stability - Pound Exchange Rates Edge Higher
- Written by: Gary Howes
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The British pound (GBP) managed to hold its ground as senior figures from the Bank of England appeared before the Treasury Select Committee.
The UK's sterling is largely unchanged following the appearance confirming the team from the Bank managed to stay on-message.
"The overall conclusion is still that they now have no idea when they will raise rates and Carney and others will - sensibly, given everything that is happening in the euro zone - hold off for as long as possible," said a trader at a London bank quoted by Reuters.
- At the time of this article's last update the pound to dollar exchange rate (GBP/USD) trades slightly lower at 1.5717.
- The pound to euro exchange rate (GBP/EUR) is seen trading at 1.2592.
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The Treasury Select Committee hearing was attended by Governor Carney and MPC members Forbes, Cunliffe and McCafferty.
There is the view that Forbes could be leaning towards a rate hike.
Since the November Inflation Report, expectations for the first interest rate hike at the Bank of England this has been pushed further back from Q3 to Q4 2015.
The move has seen the pound sterling fall as a result - moves in the exchange rate continue to track expectations regarding interest rates at the Bank.
"Comments from the BoE MPC members in attendance at the Treasury Select Committee were quite mixed yesterday; highlighting the range of views within the committee as indicated in the BoE minutes last week," say Lloyds Bank Research.
Ian McCafferty maintained his hawkish stance, while Jon Cunliffe revealed come concerns over downside risks to inflation; and Governor Carney's views seem to remain close to the MPC's central stance.
"Kristen Forbes’ comments on the other hand suggest she was perhaps towards the hawkish end of the spectrum of those voting to leave policy unchanged. However, overall the headlines had little impact on UK yields or GBP," say Lloyds.
OECD Sees UK Interest Rate Rise in mid-2015
As mentioned, markets are currently factoring an interest rate rise for late 2015.
They are off-mark warns the OECD in their latest global economic assessment released on Tuesday.
The OECD expects Bank policymakers to raise interest rates from a record low of 0.5pc in "mid-2015". It said tighter monetary policy would be a mark of success for the UK economy, which would support future pay growth through stronger productivity.
"Higher interest rates associated with the economic recovery could support stronger productivity growth by encouraging the selection of more profitable projects and the restructuring of loss-making companies," the OECD said in its twice-yearly economic outlook.
If the OECD is right and markets re-align expectations expect GBP to rise.
Pound Dollar Exchange Rate: Improved Technical Outlook
Ahead of the fundamental risks facing GBP, Ozkardeskaya meanwhile notes that the GBP/USD has seen an improvement in its technical configuration lately:
"The formation of bullish engulfing (conviction 5/9) hints at better short-term outlook, a daily close above 1.5692 (MACD pivot) should push for upside correction."
However, last week’s double top 1.5736/37 is yet to be broken to confirm a stronger uptrend is now in place.
Emmanuel Ng at OCBC Bank is not confident on the UK currency's prospects:
"The pair may remain caught in the EUR’s undercurrents ahead of the UK 3Q GDP numbers due tomorrow. Although we are tactically uncommitted in the short term, if the pair fails to establish a decent handhold at 1.5700, a relapse back towards 1.5600 may well materialize."
Elsewhere, the dollar ended mixed to weaker on Monday with the EUR-USD given a boost by the better expected German November Ifo readings.
The common currency also found partial support after the ECB’s Weidmann said that the ECB may run into “legal limits” as it explores further options for monetary easing.
"Meanwhile, initial resilience in the cyclicals stemming from the PBOC’s latest rate cuts quickly fizzled out with the AUD-USD’s touch and go brush with the 0.8700 level eventually seeing a relapse back towards the 0.8600 neighborhood by late NY," says Ng.
Despite TKY being away for a long weekend, USD-JPY heaviness in Asia proved short-lived with the pair eventually retaking the 118.00 handle towards 118.50 with the yen also underperforming across G10 space.
