British Pound Sterling Spikes

The British pound regained earlier losses in an instant Wednesday morning after new head of the Bank of England Mark Carney made his first official public remarks as the Central Bank Governor.

His comments though not particularly controversial according to Miller Tabak Chief Economic Strategist Andrew Wilkinson, apparently were not what was expected as the pound surged a full handle (see chart).

Pound Aug 28

 

 

 

 

 

 

He did note that growth prospects were solid not stellar and warned that the market response to a potential tapering at the Fed threatened the recovery according to Wilkinson.

Mark Carney delivered his maiden public speech in Nottingham, England earlier, causing havoc for the British pound. The pound surged against the US dollar following his remarks, which although dovish maintained an even keel on the threat of action against rising inflation. The dollar had advanced with one pound buying $1.5450 ahead of his delivery but has advanced by a full cent to as high as $1.5547. Short sterling futures also surrendered gains with implied three-month cash rates tracking higher in the forward market.

Wilkinson wrote, “Carney also announced relaxation of liquidity rules on banks that meet capital requirements in order to encourage lending to help the economy. Lenders meeting requirements will not have to hold as many low-yielding and liquid government bonds freeing up capital in order to lend out to the real economy.”

Wilkinson pointed out that while Carney did not indicate a bias towards tightening anytime soon, he would not hesitate to raise rate when necessary. Carney stated, “I can assure you of my personal commitment to price stability. I certainly have no hesitation in raising interest rates when required”.

 

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