Carney and May Appearances a Damp Squib for the Pound

There is a lot of comment and media reporting doing the rounds suggesting the British Pound is lower against the Euro and Dollar today thanks to comments made by Bank of England Governor Mark Carney and Theresa May.

This is a red herring.

The Governor of the Bank of England has said nothing that would suggest this is the reason for Sterling’s inter-day weakness.

Comments that were made at an event focussing on 20 years of Bank of England independence were wide ranging, and hold little bearing on future interest rate policy.

If anything, the fact that he said nothing might have disappointed some. But this is tenuous.

"May and Carney have been addressing the Bank of England’s conference celebrating 20-years of its independence this morning, but the market impact has been minimal," says Kathleen Brooks at City Index in London.

If anything, comments that were made were ultimately positive for Sterling. "Carney made the most pound sensitive comment, saying that the BOE will support the UK economy through the Brexit process, and since Brexit is still so uncertain one can assume this means limited rate hikes from the BOE," says Brooks.

Yet the Pound is moving, and a look at the numbers gives us some clues as to what is happening:

The Pound-to-Euro exchange rate is down 0.35%.

The Pound-to-Dollar exchange rate is down 0.15%.

The Euro-to-Dollar exchange rate is up 0.19%.

Therefore, the Pound’s underperformance against the Euro is almost purely a function of the interplay between the Dollar and Euro.

This cross-pollination of exchange rate value is nothing new; we often see the three currency pairs influence each other, depending on what news or data events are at play.  

The Euro and Dollar are in the driving seat this morning - the Dollar extending its recent recovery triggered by Yellen’s speech earlier in the week and US tax reform announcements made overnight.

At the time of update we note Sterling is recovering in the wake of the latest update regarding Brexit negotiations out of Brussels where both Michel Barnier and David Davis confirmed notable progress had been made.

Full coverage of this here.

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