Cable Tumbles as Carney Fumbles

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Market Drivers for June 24 2014

Carney – still a lot of slack in the system no confirm that rates will rise this year

EZ IFO slightly lower at 109.7 but euro shrugs off

Nikkei .05% Europe -.09%

Oil $105/bbl

Gold $1324/oz.

Europe and Asia:

EUR IFO 109.7 vs. 110.3

GBP BoE testimony suggest rates will remain on hold

North America:

USD Consumer Confidence 10:00 AM

USD New Home Sales 10:00 AM

Bank of England Governor Mark Carney sent cable tumbling through the 1.7000 support level in morning London dealing after his testimony in front of the UK Parliament suggested that the MPC is a long way off from hiking UK interest rates.

Mr. Carney’s dovish statements in front of the Treasury committee were a stark contrast to a week ago when he suggested that rates in UK could rise as early as this year. Speaking in front of Parliament Mr. Carney attempted to clarify his earlier views by stating that he was merely expressing his own opinion rather than the position of the full MPC. He noted that he did not consult MPC members prior to making the comments last week.

Speaking today Mr. Carney was far more circumspect about any monetary policy moves, emphasizing the fact that the slack in the UK economy remains significant and that the BoE would not even entertain the idea of a rate hike until the unemployment rate declined to 6%. Furthermore, Mr. Carney added that the pace of interest rate hikes was more important than the timing of the initial increase indicating that the tightening policy will be modest at best.

It is clear from the cautious tone of the BoE policymakers, that UK monetary authorities remain far more concerned about stifling out the nascent recovery than about controlling any inflationary or asset bubble pressures.

Cable took it on the chin as a result of today’s testimony as bulls bailed out their positions sending the pair to a low of 1.6972 before it found some support. Sterling may now consolidate for the rest of the week with 1.7060 remaining the swing high as markets adjust to the more cautious posture of the MPC. Ultimately however, the price of GBP/USD will be driven by data, and if UK growth remains on course the pair is likely to revisit the recent highs.

Elsewhere in Europe the German IFO report was slightly weaker than expected at 109.7 versus 110.3, but remain near the recent highs. The economic conditions is Germany have slowed slightly, but overall the economy remains robust suggesting that Q2 growth will be in line with forecasts. Euro quickly recovered from the initial selloff and rose to fresh daily highs at 1.3625. The pair has been remarkably resilient over the past several weeks holding support at the 1.3500 level and many now make a run at the key 1.3650 resistance to take out longer term stops of the shorts.

Boris Schlossberg
Managing Director

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