GBP/USD Strikes Two-Week Low as Carney Comments Dampen Rate Expectations

GBP/USD Strikes Two-Week Low as Carney Comments Dampen Rate Expectations

GBP/USD Strikes Two-Week Low as Carney Comments Dampen Rate Expectations

This forced market observers into realising that a May rate hike was perhaps not the foregone conclusion they had expected.

'Retail sales have been a bit softer - we are all aware of the squeeze that is going on in the high street.

Following Mr Carney's comments the pound fell by almost a cent against the dollar, as markets reacted to the idea that interest rate rises might not be as imminent as some had thought.

"I am sure there will be some differences of view but it is a view we will take in early May (at the next meeting of the Bank's Monetary Policy Committee), conscious that there are other meetings over the course of this year".

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In a speech at the University of Strathclyde in Glasgow, Saunders said: "Gradual" does not imply that the MPC can only raise rates at a very low frequency, such as once per year. It is more about the general path".

He noted that the central bank will have to adjust its decisions around the Brexit negotiations and eventual divorce deal to "keep the economy on a stable path".

"Markets have been running away with themselves whilst inflation is in actual fact moving back towards the Bank of England's target rate of two per cent and Brexit uncertainties could also delay any hikes".

The British Pound took a battering at the hands of Bank of England Governor Mark Carney overnight, confirming that Bank of England interest rate expectations remain a key driver of Sterling.

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However, traders have been pricing-in an interest rate rise for some time now and economists were expecting a rise of 0.5% to 0.75% on 10 May.

Saunders said he believed inflation pressure from the labour market was likely to be stronger than the BoE had forecast in February and that the economy would grow by 1.5-2.0 percent a year over the next couple of years, just above its potential.

There has been considerable speculation in recent months regarding the possibility of the BoE raising interest rates in May, which has lent significant strength to Pound (GBP) exchange rates.

British interest rates - now 0.5 percent - needed to steadily return to a more normal or "neutral" level, which Saunders said was estimated at around 2 percent but subject to change.

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It will be a finely balanced decision and the next important statistic to look at will be the three monthly economic growth figure next week.

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