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EUR/GBP, GBP/CHF Flags Ready for Liftoff as Carney Signals Policy Shift

EUR/GBP, GBP/CHF Flags Ready for Liftoff as Carney Signals Policy Shift

2014-06-26 10:55:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- GBP picks up losses from last several days on BoE announcement.

- EURGBP, GBPCHF offer clearest flag opportunities.

- See the DailyFX Economic Calendar for Thursday, June 26, 2014.

It's been a busy week for Bank of England Governor Mark Carney, first telling us two days ago that his Mansion House speech, widely perceived as rather hawkish, shouldn't be viewed in that light. Whereas the commentary from Governor Carney earlier this week walked back expectations of tighter monetary policy, it appears the commentary was merely a distraction for the measures presented to.

Describing Governor Carney's commentary earlier this week as 'misdirected' seems harsh, but today's actions per the Financial Stability Report may help clear the haze. The BoE is evidently concerned about the pace of housing price gains, and in order to stamp out excessive speculation, the central bank is curbing borrowers' capacity to take on leverage.

Considering that the measures taken will only impact a very small portion of house purchasers in the UK, these are only the first small steps in the lead up to the BoE's first interest rate hike - which apparently is too blunt of a tool.

Rather than reducing incentive to borrow excessively across the board, the BoE is targeting the top of the pyramid. In all likelihood, the measures today will be only mildly effective if at all, and additional efforts to tweak BoE policy in a more hawkish light are just beginning.

With the ECB and SNB walking hand-in-hand down the path of ultra-loose monetary policy - be it by negative deposit rates or a currency pegged to another whose central bank is experimenting with negative rates - there is a definitive divergence from the BoE. Watch the above video for a look at the patterns unfolding in EURGBP and GBPCHF (as well as GBPUSD) to see how to take advantage of potentially bullish GBP opportunities over the coming days.

Read more: Carney Walks Back Hawkish Tone Setting Up ST GBP/USD Selling

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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