GBP Bites into Aus Dollar Indian Rupee While Carney Takes "a Second Bite of the Forward Guidance Cherry": Wed 28th Live Coverage
The British Pound Sterling (Currency:GBP) has today taken another chunk out of the Indian Rupee and Australian Dollars as emerging markets continue to correct lower in anticipation of US Fed tapering. The crunch for the Pound Sterling comes at 12:45 today when Governor Carney speaks in Nottingham - currency markets will look for any hints of a change in course on forward guidance.
Highlights:
@ 08:50: GBP in strong gains versus Rupee and Australian Dollar
@ 10:37: A return to quantitative easing?
@ 15:56: Carney was good enough for the bulls
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17:09: RBS: Sterling to struggle in coming weeks
Economic data surprises have been responsible for the good run witness in GBP rates over the past 5 weeks.
However, according to Paul Robson at RBS the UK currency will likely not be able to rely on these data surprises in coming weeks:
"It would appear that further positive data surprises will be harder to come by from now on, with the UK economic surprise index having reached levels not seen since 2009.
"This suggests that GBP may also start to find it harder yards in the coming weeks, particularly with a lighter data calendar and the pair having failed to breach topside resistance around 1.5700/1.5750, in spite of the better data."
15:56: Carney was good enough for the Sterling bulls
Kathy Lien at BK Asset Management gives her verdict on Carney's speech and the subsequent currency reaction:
"The British pound rallied on the back of optimism from Bank of England Governor Carney. While the new head of the central bank said forward guidance doesn't prevent the BoE from adding stimulus and they could ease if market rates hurt the recovery, his comment that the recovery is broad based and set to continue was enough to rally the pound.
"Carney also said that UK growth prospects are solid, not stellar - a comment that was good enough for sterling bulls who were looking for any acknowledgement of a firmer outlook by the BoE."
14:23: A benign reaction to Carney
The Carney speech appears to have placed an element of support underneath the British Pound - nothing new from his Nottingham speech; he stuck to his original message and kept a similar tone. Many currency commentators had predicted the Governor would use more dovish rhetoric to talk down rates but he resisted doing this.
13:45: Carney Live
14:17: Question on exchange rates by an exporter: "Some are going to go up, some will go down" - to much laughter. Carney says this is territory he does not tread on. Completely dodges this one.
14:10: Question Time. Unemployment will be above 7% after three years.
Summary as he ends set piece:The recovery is steady, not rapid. Global risks remain, particularly Eurozone. UK consumer becoming more sustainable.
@14:06: Shrugs off concerns of housing bubbles. Says Bank doesn't need to raise interest rates to stem bubble. Sterling recovery appears to have stalled around 1.5530.
@ 14:04: BoE relaxes liquidty rules for banks meeting 7% capital level
@14:02: On further quantitative easing: "We will consider carefully wheather to stimulate economy further"
@13:58: On yields: "A generalised upward movement in bond yields over course of past month" - "rise in long term bond yields should be expected" - 1/3 chance of unemployment beating the bank's own forecasts. - Sterling undaunted.
@13:53: A million new jobs required in the private sector before bank considers dropping the interest rate
@13:47: "Recovery is broadbased, is welcome" - GBP/USD spikes!
@13:45: Carney takes to the podium, flattering the midlands...
12:06: A more positive view ahead of Carney's speech
The impact of today's Carney speech is predicted to be short lived according to Piet Lammens at KBC Markets:
"We expect no material setback of sterling as long as the eco data continue to point to further economic improvement.
"In a day-to-day perspective, global uncertainty, the Carney speech and end of month positioning might cause some slight further losses of sterling."
11:20: GBP/INR continues cruise higher
Now is the time to buy your Indian Rupees it would seem. Read our latest report on GBP/INR here.
10:37: A return to quantitative easing?
Any suggestion of a return of quantitative easing today in Nottingham will hit the pound sterling.
Lloyds Bank Research explain that this is indeed a possibility:
"The event in Nottingham will mark Mr Carney’s first public speech and he is likely to use the opportunity to reaffirm the Bank’s intentions to keep interest rates at an all-time low for the foreseeable future.
"Mr Carney is likely to also play down the strength of the current upswing and point to the recovery being far from being satisfactory.
"Recent comments from MPC members Weale and Bean have suggested that QE continues to remain an option for the MPC. Today’s speech will be closely watched for any sign that the Committee could follow up with more concrete stimulus - including the possibility of more QE."
09:41: Anticipating tight ranges for GBP versus EUR
Sasha Nugent at Caxton FX is another commentator forecasting a dovish, GBP-negative bias to today's proceedings in Nottingham:
"A dovish statement is highly likely from Carney, and consequently will push the rate further downwards. However, it may also provide the market with confidence in the central bank’s commitment to forward guidance and therefore tight ranges are expected."
08:53: 'A majority' doubt carney
Ipek Ozkardeskaya at Swissquote says:
"GBPUSD opened the day on the downside ahead of Carney’s first speech as BoE Governor in Nottingham today. Markets bet on the downside, as Mr. Carney is expected to keep the dovish tone yet a clear majority voice doubt on Carney’s “forward guidance with inflation knock-out” framework’s effectiveness."
08:50: GBP firms versus EUR, strong advances versus Rupee and Aus Dollar
A look at the bellwether currency pairs we follow shows:
The Pound Sterling to Euro exchange rate is marginally down on Tuesday night's close 1 GBP converts to 1.1603 EUR.
The Pound Sterling to US Dollar exchange rate is 0.18 pct down, 1 GBP converts to 1.5519 USD.
The Pound Sterling to Australian Dollar is 0.5 pct higher; 1 GBP converts to 1.7391 AUD.
The Pound Sterling to New Zealand Dollar is 0.23 pct higher, 1 GBP converts to 1.9987 NZD.
The Pound Sterling to Indian Rupee is 3 pct higher, 1 GBP converts to 106 INR.
Please be aware: The above quotes are taken from the wholesale spot markets. Your bank will charge a discretionary spread to the above figures. However, an independent FX provider will guarantee to undercut your bank's offer, thereby delivering more currency. Please learn more here.
08:40: Key questions for Carney
At 12:45 Bank of England Governor Carney speaks in Nottingham.
Michael van Dulken at Accendo markets asks:
"It’ll be BoE Governor Carney’s second bite at the forward guidance cherry. Can he deliver his message more clearly this time? Can he make markets believe a rate rise won’t come earlier then H2 2016, knock-out clauses are not to be feared and the inflation target is not now 2.5%?"
It is widely believed that the Bank will be forced to raise rates sooner owing to the strong recovery being witnessed in the UK economy. This is a GBP positive.
Ross Walker at RBS says:
"Our economic and labour market outlook suggests the BoE's forward guidance will be 'knocked-out' in early 2015.
"That would be consistent with Bank Rate and the QE asset purchase target being left on hold throughout our formal forecast period (to end-2014), suggesting the first hike around mid-2015."
08:30: CBI Distributive Trends Survey ahead, look for 20
Yesterday the CBI told us that the services sector was showing an impressive return to form; ahead today at 11 AM we have the release of the CBI Distributive Trades Survey.
The CBI Distributive Trades Survey released by the Confederation of British Industry is an indicator of short-term trends in the UK retail and wholesale distribution sector.
Consensus estimates are for a reading of 20. Anything above is GBP positive, anything below is negative.
However, this reading is likely to be drowned out by Carney's speech, due an hour later.