Mark Carney reins in currency union talk

30 January, 2014

Rob Bastin

As we pass the midweek point, sterling is still holding firm on the exchange rates that have been available over the last 48 hours. With a lack of economic data out yesterday, the markets were keen to gather any new information from Mark Carney as he gave a speech on the prospects of a Scottish Independence and the implications from the Bank of England’s perspective. The governor of the Bank of England was keen to get over his view on the retention of sterling and the Bank of England’s services as being the best option for both Scotland and the rest of the UK in the event of a YES vote at the Scottish Independence referendum later this year. Mark Carney was again posed various questions on the future stance of interest rates in the UK and whether hikes could be realised sooner than expected now that unemployment has dropped to 7.1%. The governor was quick to dampen these expectations saying that unemployment dropping to 7% over the coming months was by no means a trigger point for interest hikes and that the economy would not warrant this change until at least the first quarter of 2015, with any raise in interest rates being gradual over a period of time.


Whilst on the subject of interest rates there have been rate hikes elsewhere in the world with South Africa raising rates by 0.5% to a 5.5% base rate. This decision was little more than a desperate act to recover some of the Rand’s value and attract further investment after the currency dropped another 10% against the pound since the new year and is now 80% worse off than 3 years ago. This rate change comes 24 hours after the Turkish central bank doubled their interest rates from 4.5% to 10% with a similar hope of recovering the continued weakness and selling off of its currency over previous months.


Last night also saw the latest interest decision for both the USA and for New Zealand with both countries holding interest rates as expected at 0.25% and 2.5% respectively however the Federal reserve did announce another taper of $10bn which has subsequently seen the dollar strengthen against the pound over night.


Today’s data focus is on Germany at8:55am with their latest unemployment figures and at 1:00pm with the latest inflation data. Confidence and sentiment updates are announced for the Euro-zone at 10am whilst it the US that will be taking the afternoon headlines as we find out if their GDP has in fact slowed significantly as analysts are forecasting. To discuss the implications of any of these releases on your currency needs then do not hesitate to contact your personal Account Manager at Currency Index who will be happy to talk things through with you.