Carney?s Comments Propel Pound Euro Exchange Rate (GBP EUR) To 2-Week High

Published: Friday, 8 February 2013 09:00 BST - Written by Ben Hughes

STORY LINK Carney?s Comments Propel Pound Euro Exchange Rate (GBP EUR) To 2-Week High

Sterling staged a dramatic turnaround in the currency markets yesterday, reversing a portion of the losses which it has incurred since the start of 2013 to outperform all of the other sixteen most-actively traded global currencies on the day.

The Pound’s positive showing was largely attributable to comments by Bank of England Governor-in-waiting Mark Carney during a questions and answers session with the Treasury Committee at the House of Commons. Analysts had been expecting Carney to trot out more of his ultra-dovish philosophy regarding quantitative easing, following recent comments calling for global central banks to introduce even looser monetary policies. Carney took the markets by surprise by suggesting that flexible inflation-based targets are still the best way to determine monetary policy – investors had been anticipating that Carney would favour a switch to GDP-based targets. Adjusting policy in order to control domestic price rises is considered to require higher interest rates in an economy than would otherwise be the case. This fact proved supportive for Sterling yesterday, sending the Pound Euro exchange rate (currency : GBP EUR) to its highest level for two weeks at 1.1742 late yesterday.

Elsewhere, last night’s Asian session brought the release of a highly positive set of Chinese trade figures, which showed that the level of exports in Asia’s leading economy had increased by an impressive 25% in comparison with January 2012’s counterpart figure. Domestic imports made even greater gains, showing at an annualised increase of some 28.8% last month. However, the data failed to convince many investors who feel that official numbers from China have been less than reliable in recent times. Doubts about the veracity of the Chinese trade numbers meant that they have so far failed to have any discernibly positive effect on risk sentiment, as evidenced by losses of over 1.5% for Tokyo’s Nikkei 225 index by the middle part of last night’s session.

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