Mark Carney moves the goalposts again

24 July, 2014

Simon Eastman

Yesterday we had the eagerly anticipated Bank of England minutes where in early morning trade it looked like investors were hoping to see some members vote for a hike as we saw the pound rise to fresh highs against the euro and re-gain losses against the other major currencies seen on Tuesday.

Alas the minutes came out with unanimous votes to keep interest rates unchanged and asset purchase as is, which saw the pound swiftly drop back from the peak half a cent to the previous highs where the pound then traded within a small range for the rest of the day.  Later in the day Mark Carney dampened investor hopes further about rising interest rates here in the UK by suggesting MPC members would “update thinking”  at the next inflation report looking to now take pay growth into their decision on when we could see interest rate hikes. Initially it was unemployment, then inflation and now pay growth. It looks like it could be a while until interest rates go up here if the Bank keep changing their mind which although good for borrowers, not so good for savers or investors who up until now have been keeping the pound strong. We will have to see what the inflation report next month brings, but this could be a warning for any euro buyers out there that it could be worth locking in that rate sooner rather than later, as any damping down of rate hikes will almost certainly cause sterling weakness.

Across the pond we saw Canadian retail sales which came out well under expectations and saw the Loonie weaken nearly a cent. Overnight, the RBNZ interest rate decision which saw the rates lifted by 25 basis points as expected to 3.5 percent. Despite this which would generally strengthen a currency, the statement following which stated they would now be pausing hikes actually weakened the Kiwi by 1.5 cents against sterling.

Looking forward to today we an array of ecostats, starting with French, German and EU manufacturing and services PMI plus Italian retail sales and Spanish unemployment. For the UK its retail sales followed after lunch by numerous US data including PMI, new homes sales and jobless claims. Plenty to go on and move the markets so stay in touch with your CI broker for any updates.