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GBP Soars as BOE's Carney Lights the Monetary Touchpaper

GBP Soars as BOE's Carney Lights the Monetary Touchpaper

Nick Cawley, Strategist

Talking Points

- BOE governor changes course after shooting down the hawks last week.

- GBP/USD jumps over 1.29000 on governor’s speech.

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for next week on the DailyFX Webinar Calendar.

Speaking at the European Central Bank (ECB) Forum in Portugal, Bank of England (BOE) governor Mark Carney sent GBP spinning higher after seemingly changing his dovish outlook. Carney hinted that a rate hike may be now on the cards as inflation nears 3%.

“When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove. Moreover, with domestic inflationary pressures, particularly wages and unit labour costs, still subdued, it was appropriate to leave the policy stance unchanged at that time. Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional. The extent to which the trade-off moves in that direction will depend on the extent to which weaker consumption growth is offset by other components of demand including business investment, whether wages and unit labour costs begin to firm, and more generally, how the economy reacts to both tighter financial conditions and the reality of Brexit negotiations.

Carney added, “These are some of the issues that the MPC will debate in the coming months.”

GBPUSD jumped to a three-week high of 1.29470 and currently eyes the May 18 high of 1.30480.

Chart: GBPUSD One Minute Timeframe (June28, 2017)

GBP Soars as BOE's Carney Lights the Monetary Touchpaper

Chart by IG

And the latest move may trigger retail into covering shorts, especially if the recent high above 1.30480 is taken out. According to the IG Client Sentiment Indicator, retail remains short of GBP against USD, 61% against 39%. The latest sharp up move in Sterling may soon flush these shorts out.

--- Written by Nick Cawley, Analyst

To contact Nick, email him at nicholas.cawley@ig.com

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