BoE's Carney and Haldane Sink the British Pound

Pound sterling was the worst performer in global FX over the past 24 hours as the Bank of England’s two most prominent decision-makers gave no suggestions that they were near raising interest rates.

The publication of the Bank of England’s Quarterly Inflation Report and subsequent press briefing on November 5 had prompted the market push to back their expectations for a UK interest rate into early 2017.

Of late though traders have bought sterling on the assumption that this date would be brought forward on developments in the United States.

The US Federal Reserve is now tipped by 90% of economists recently polled to raise interest rates in December. Sterling-bulls had been hopeful the Bank of England would follow suit using the Fed as cover.

However, there appears to be no change in sentiment at the Bank and the British pound has decline as traders retreat back to their previously held assumptions.

The pound to euro conversion has retreated to 1.4166 on the inter-bank markets while retail banks are offering around 1.3769 for big-ticket transfers. Independents are tighter to the market and quoting around 1.3996.

The headline pound to dollar exchange rate has retreated to 1.5070 with the best retail rates being offered around 1.4890.

“The appearance of UK BoE Governor Carney, alongside Chief Economist Haldane allowed them, in particular the latter, to burnish their dovish credentials,” notes Jeremy Stretch, an analyst with CIBC in London.

Carney and Haldane were giving evidence to the UK parliament as politicians get the chance to fathom details of, and subsequent developments to, the November Quarterly Inflation Report.

Haldane stated that in his opinion the risks to CPI and GDP are “skewed materially to the downside, more so than embodied in the November 2015 Inflation Report.”

The BoE Governor also underlined no desire to adjust BoE policy any time soon.

"The dichotomy between domestic strength versus external weakness will continue to haunt the BoE over the coming year. We expect the MPC to err on the side of caution, demonstrating greater tolerance of medium-term inflation, and embark upon rate hikes only when there is enough evidence of inflationary pressure," says Vatsala Datta at RBC Capital Markets.

The immediate outlook for the British pound remains subdued - Chancellor George Osborne is set to detail upcoming fiscal tightening in the Government’s spending review due mid-week and there is good reason for sterling exchange rates to remain on the defensive.