THE TAKEAWAY: Governor Mark Carney’s first public speech as Bank of England chief > Emphasizes improving economic recovery contingent on credit growth > BoE intends to keep rates low even if data improves > GBPUSD BULLISH
BoE Governor Carney was out giving remarks today during the European lunch hour for what would be his first remarks made as head of the Bank of England.
In light of recent price action in British financial instruments – higher UK Gilt yields following the Quarterly Inflation Report in early-August and the British Pound appreciating rapidly against its major counterparts – a dovish Governor Carney was anticipated.
Indeed, it seems that Pound selling the past several days was just profit taking/positioning ahead of the commentary today. The prearranged comments provoked initial selling in the British Pound (and buying of UK Gilts), but when it became clear that Governor Carney was towing the same line from earlier this month, price action quickly reversed.
Nevertheless, it seems that Governor Carney has taken note of rising UK yields and the strong British Pound, as the undertone to the comments today was still fairly dovish.
For starters, Governor Carney said that the UK’s economic recovery was behind that of the US; and just because the Federal Reserve was signaling an exit from QE3 doesn’t mean that the BoE was as well.
Here are the main points from Governor Carney that stoked volatility in GBP-based pairs this morning:
- Current guidance does not prevent the central bank from adding more stimulus.
- Jobless rate of 7% is a threshold, not a trigger.
- Mandate for 2% price stability has not changed.
- For a discussion of higher rates, unemployment must be below 7%.
- Rates will not be adjusted until there is real growth in jobs and income.
- Uncertainty in the U.K. has dragged on productivity.
- Growth prospects in the U.K. are ‘solid, not stellar.’
GBPUSD 1-minute Chart: August 28, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
The commentary provoked both a bearish and a bullish reaction in the British Pound, a similar outcome to what happened amid the QIR in early-August. The GBPUSD initially sold off from $1.5458 to as low as 1.5427, before turning around and ripping higher into a fresh session high of 1.5552. At the time this report was written, the pair had fallen back to 1.5516.
--- Written by Christopher Vecchio, Currency Analyst and Gregory Marks, DailyFX Research
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