GBP EUR Slides during Carney?s Speech at the BoE Independence Conference

September 28, 2017 - Written by Tim Boyer

STORY LINK GBP EUR Slides during Carney?s Speech at the BoE Independence Conference

The Pound Euro exchange rate tumbled today amid continued US Dollar strength and speeches from Bank of England (BoE) Governor Mark Carney and UK Prime Minister Theresa May at the BoE Independence Conference.

BoE Carney Sends Mixed Messages, GBP Encumbered

Mark Carney’s speech at the BoE Independence Conference caused somewhat of a stir this morning when he stated that Brexit would be the biggest determinant for the UK’s future economic prosperity.
Carney Stated:

‘In exceptional circumstances like today when the economy is facing profound structural change, the MPC can extend the horizon over which it returns inflation to target from above in order to balance the effects on jobs and activity. After all, even though monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU, it can influence how this hit to incomes is distributed between job losses and price rises’.

These comments contain somewhat mixed sentiment, in that Carney pessimistically highlights the possibility that Britons might suffer weaker wages during the Brexit transition period, but he also asserts that the bank can ‘influence’ and perhaps mitigate the damage caused.

Furthermore, his speech did not directly contend with monetary policy, though he did assert that the BoE would do everything within its power to minimise the risks associated with Brexit and to ‘smooth the adjustment to new opportunities’.

Investors had perhaps expected Carney to replicate his previously hawkish sentiment, so the lack thereof in this speech and the slight negativity expressed towards Brexit immediately sent demand for the Pound tumbling.
Theresa May’s also followed with a speech of her own wherein she stressed the importance and benefits of free market capitalism, though markets were predominantly concerned with Carney’s Brexit comments.

EUR Strong Despite Drop in German Consumer Confidence

The single currency remained relatively strong this morning, despite a disappointing German consumer confidence print.

The GfK consumer climate indicator for Germany is expected to drop to 10.8 in October 2017 from September’s 16 year high of 10.9 (below the market consensus of 11).

Despite the drop, however, German consumer confidence still remains extremely high, and Germans continue to view their economy as being on the upswing. Because of this the Euro was not massively affected, continuing to benefit from the current weakness of the Pound.

Beyond today’s data prints, the Euro appears to be gaining speed despite the current General Election stalemate inhibiting the bloc.

Chancellor Angela Merkel continues to attempt to build a coalition after her Christian Democratic Union (CDU) party failed to achieve a majority on Sunday, with a joint CDU, Green and FDP coalition seeming like the most likely option.

Negotiations will, nonetheless, take a long period of time to complete, with the potential to leave the Euro floundering for weeks, if not months.

GBP EUR Forecast: Sterling Liable to Regain Ground on MPC Member Speeches

The Pound could find the opportunity it needs to climb tomorrow on speeches from BoE Jon Cunliffe and Ben Broadbent, two members who are currently regarded as centrist in their values.

Markets have increasingly begun to anticipate a rate hike from the BoE, with 8 out of 9 voting members of the Monetary Policy Committee (MPC) currently being regarded as either hawkish or centrist (Silvana Tenreyro being the remaining dove).

If UK inflation continues to grow faster than anticipated in the coming months then rate hike bets will soar even higher, indeed, many already predict a rate hike to occur in November.
Should either Cunliffe or Broadbent depart from centrist values and join their fellow hawkish brethren in sentiment then GBP EUR will likely climb, though to what extent is questionable, and likely dependent on the performance of tomorrow’s UK GDP and net consumer credit figures.

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TAGS: Euro Forecasts Euro Pound Forecasts