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Mark Carney to Stay at the Helm of the Bank of England, Pound Rallies in Relief

Mark Carney and the Pound

Pound Sterling is firm at the start of the new month on October 31st's news the Bank of England's much-respected Governor will continue in his role until 2019 but analysts remain wary of the currency's ability to stage a meaningful recovery.

  • British Pound to Euro exchange rate today (1-11-16): 1.1146, Best rate of the day: 1.1162
  • Euro to Pound Sterling exchange rate today: 0.8972, Best rate of the day: 0.8981
  • Pound to Dollar exchange rate today: 1.2222, Best rate of the day: 1.2246

GBP rose after Bank of England Governor Mark Carney announced he would be staying in the job until June 2019.

There were concerns that he would leave the job earlier on personal considerations and/or on the back of pressure from some politicians who were not happy over a perceived pro-EU stance held by the Governor.

The reaction by the Pound confirms markets see his continued tenure as a positive for the UK economy.

In a statement, Carney said:

“I would be honoured to extend my time of service as Governor for an additional year to the end of June 2019. By taking my term in office beyond the expected period of the Article 50 process, this should help contribute to securing an orderly transition to the UK's new relationship with Europe.

"It is an honour and a privilege to serve in this important role. I deeply appreciate your support, that of the Prime Minister, and that of colleagues at the Bank, and I look forward to continuing to promote the good of the people of the United Kingdom during this crucial time for the country.”

Sterling was bid higher earlier in the day after Prime Minister Theresa May said she was is in favour of Carney staying in the job for his full eight year term.

There were concerns that May was frustrated with the direction Carney was taking the economy in, particularly with the damage quantitaitve easing was doing to savers.

“The prime minister has been clear in her support for the governor and the work that he is doing. Clearly it is a decision for him,” said May's spokesperson Helen Bower.

Bower said May “would be supportive” of Carney staying in the role longer than five years.

May's comments comes after the Chancellor Philip Hammond gave his backing to Carney a week prior and said he would not stand in the way of any decision to expand the Bank's asset purchase programme.

“I am very pleased to hear that you intend to continue as Governor of the Bank of England until the end of June 2019. This will enable you to continue your highly effective leadership of the Bank through a critical period for the British economy as we negotiate our exit from the European Union,” said Hammond of Carney's decision.

Uncertainty over Mark Carney’s continued tenure at the Bank of England has of late formed a new front in the wall of uncertainty that has the potential to further undermine confidence in Pound Sterling amidst talk of him standing down over personal concerns and fading support from the Government.

The steady guidance of Carney at the helm of the UK financial system has been one of the redeeming features of post-Brexit leadership in the UK and the credibility and stability he affords will be key to ensuring a stable transition out of the European Union.

Were questions to be asked about who would head the BoE on a Carney departure then Sterling could fall on an added source of uncertainty.

Steve Rattner, chairman at Willet Advisors, said that the question of Carney's future at the Bank posed the week's biggest risk for global exchange rate markets.

Rattner says, "the fact that he appears to be staying on is good news because he is like Ben Bernanke, Janet Yellen or Draghi for that matter, a really really capable central banker and it's good to have him at the helm at these rather turbluent times."

The whole story concerning Carney's imminent departure were described, quite rightly by an Economist op-ed as being a “stupid” media over-reaction to rumours.

Latest Pound/Euro Exchange Rates

United-Kingdom European-sUnion
Live:

1.1186▼ -0.02%

12 Month Best:

1.2039

*Your Bank's Retail Rate

 

1.0806 - 1.085

**Independent Specialist

* Bank rates according to latest IMTI data.

** RationalFX dealing desk quotation.

 

Pound Enters New Month on Firmer Footing - Where Next?

Despite the stability in Sterling, analyst Kit Juckes at Societe Generale reckons the British Pound will continue to trade with a soft bias:

“From here, the test comes from the data, and whether it goes on holding up as well as it has been. If (as seems likely) we see a series of somewhat soggier data releases form here onwards starting with this week's PMIS, sterling will struggle to rally very far, but will probably see volatility leach out of the market. We retain a bearish bias, but maybe with fewer thrills.”

Analyst Meera Chandan at JPMorgan is meanwhile more bearish and tells clients that there is unlikely to be a let up in pressures on Sterling:

“We also recommend increasing our short GBP exposure this week. We have been structurally bearish on GBP since November 2015 given the reliance of UK on foreign capital and this continues to be the primary source of risk in the coming months as well.

“We had reduced our underweights two weeks ago given the risk of short covering amid the ongoing High Court proceedings.

“However, the inability of GBP to strengthen despite a strong GDP outcome indicates that positioning is perhaps not that crowded. We do not view the increase in gilt yields as a source of support for GBP.”

Scotiabank's Shaun Osborne believes the recent stabilisation should give way to another move lower.

"Sterling felt no love from the move out of the USD late Friday and the technical picture in Cable remains clearly bearish. We spot short-term resistance in the low 1.22 zone and stronger, short-term trend resistance at 1.2430 today.

"The Pound’s sell-off has steadied since early October but there is little to suggest that this is anything more than a pause in a trend move lower (rather than a reversal). We see support at 1.2095/00 and look for a drop back to the flash crash low below there."

Pound Sterling to Stabilise say ANZ

For the moment, expectations for a hard-Brexit appear to have been absorbed by Sterling and until new political dimensions emerge a number of analysts we follow believe Sterling may consolidate.

The Pound remains within recent ranges and analysts at ANZ expected the currency to do so heading into Thursday’s all-important Quarterly Inflation Report and policy announcement and the Bank of England.

What shouldn’t be overlooked is that the economy is performing quite well for the time being:

The housing market has perked up, the 3m/3m trend in retail sales shows upward momentum in consumption (September +1.8%), the labour market is holding up well, and inflation is showing signs of accelerating.

“The rule of thumb is that every 10% drop in the exchange rate raises CPI inflation by around 1.75% over two years,” say analysts at ANZ in a briefing to clients.

ANZ’s expectation is that the BoE will probably upgrade its assessment of growth and inflation in the November inflation report.

Meanwhile, the autumn statement on fiscal policy is likely to be expansionary and push out the timing of when a balanced budget will be achieved whilst also providing some current fiscal stimulus.

While it is impossible to quantify the appropriate risk premium for Sterling and major questions overhang longer-run growth, in the short run sterling may have adjusted sufficiently.

ANZ targets GBP/USD at 1.22 and EUR/GBP at 0.88 by year-end.

British Pound World's Worst Performer of the Month, More Losses Likely

Another poor month for Sterling comes to a close with the currency being the worst performer in the world. Literally.

 

 

Analyst Meera Chandan at JPMorgan meanwhile tells her clients that there is unlikely to be a let up in pressures on Sterling over the coming month:

“We also recommend increasing our short GBP exposure this week. We have been structurally bearish on GBP since November 2015 given the reliance of UK on foreign capital and this continues to be the primary source of risk in the coming months as well.

“We had reduced our underweights two weeks ago given the risk of short covering amid the ongoing High Court proceedings.

“However, the inability of GBP to strengthen despite a strong GDP outcome indicates that positioning is perhaps not that crowded. We do not view the increase in gilt yields as a source of support for GBP.”

Quite the contrary since higher UK yields are indicative of higher inflation expectations (in part from a weaker currency), higher risk premium for the sovereign as well for the possibility of reduced foreign sponsorship of UK assets including gilts argue JP Morgan.

 

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