Cable Spikes As Carney Says No Need For QE

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Market Drivers for September 27th, 2013
Carney say sees no need for more QE send cable flying
Aussie drifts on chatter of possible rate cut
Nikkei -0.26% Europe -.13%
Oil $102/bbl
Gold $1324/oz.

Europe and Asia:
EUR French Consumer Spending -0.4% vs. 0.1%
EUR Retail PMI 48.6 vs. 50.3
GBP Index of Services 0.5% vs. 0.6%

North America:
USD Personal Income/Spending 8:30
USD U of M 9:55

A early morning article in the Yorkshire Post caught currency traders off guard today sending pound soaring after it revealed comments by BOE chief Carney that he sees no need for further QE at this time. Mr. Carney’s remarks were actually made yesterday in a meeting with businessmen at offices of a law firm and made their way to the paper today.

The news, which was released in early pre-London market trade, spiked cable by nearly 100 points amidst low liquidity conditions, but the pair settled down after the initial shock and gave back most of its gains. Although there is little reason to believe that the BOE would engage in further QE given the 9-0 vote on MPC, Mr. Carney comments nevertheless signaled that he may be changing his ultra-dovish posture given the rapid improvement in UK economic conditions.

Ironically enough the very latest data points out of UK have shown some slowdown in activity with Retail sales turning negative and current account deficit growing wider. Therefore next week could prove crucial to cable as the market gets a glimpse of the latest PMI reports to gauge the pace of growth manufacturing services and construction sectors. Cable remains contained at the 1.6150 level for now with support at 1.6000.

Meanwhile Aussie drifted in the opposite direction with the pair dropping to session lows at 9320 as rumors circulated of a possible RBA rate cut at next week meeting. Although data has been almost uniformly negative this month with Retail Sales, Current Account and employment reports all missing their mark, the RBA has remained steadfastly neutral so far. However, with Fed delaying the taper, the Aussie has appreciated by nearly 500 points this month much against the wishes of the RBA. Therefore the central bank may indeed decide to cut rates next Tuesday to stem the rise in the exchange rate and stimulate the anemic growth Down Under.

In North America today only second tier data in the form of Personal Spending and Income reports as well as the second revision of the U of M data. Given the harsh rhetoric out of Washington it is likely that consumer sentiment has deteriorated and that could put fresh pressure on USD/JPY with the pair possibly testing the 98.50 level as the day proceeds.

Boris Schlossberg
Managing Director

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