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13 Mar 2015
Governor Carney signals GBP strength may slow rate hikes – BTMU
FXStreet (Barcelona) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, views that yesterday’s Governor Carney’s comments clearly highlight that the BoE is wary that the pound could strengthen further weighing on core inflation, and limiting the hikes.
Key Quotes
“The pound was undermined yesterday by comments from BoE Governor Carney who implied that the strengthening pound could result in a slower pace of rate hikes from the BoE in the coming years.”
“Governor Carney stated in a speech yesterday that it may be appropriate to take into account “persistent external deflationary forces” including the “combination of continued foreign low inflation and the protracted effects of sterling’s strength on the prices facing UK consumers”.”
“He added as a well that even a Bank rate of 0.5% might look high-yielding in the current environment, and that fears of a bad outcome abroad could trigger safe-haven capital inflows into the UK pushing the value of pound higher.”
“The comments clearly highlight that the BoE is wary that the pound could strengthen further weighing on core inflation.”
“He concluded that “despite these headwinds, a solid UK expansion underpinned by strong domestic demand growth leaves us on track to return inflation to target within two years” which is consistent with expecting limited and gradual rate hikes over the next three years.”
“It is consistent with our view that the pound should continue to perform relatively well this year, although downside pressures may intensify temporarily heading into and in the aftermath of the general election in May.”
Key Quotes
“The pound was undermined yesterday by comments from BoE Governor Carney who implied that the strengthening pound could result in a slower pace of rate hikes from the BoE in the coming years.”
“Governor Carney stated in a speech yesterday that it may be appropriate to take into account “persistent external deflationary forces” including the “combination of continued foreign low inflation and the protracted effects of sterling’s strength on the prices facing UK consumers”.”
“He added as a well that even a Bank rate of 0.5% might look high-yielding in the current environment, and that fears of a bad outcome abroad could trigger safe-haven capital inflows into the UK pushing the value of pound higher.”
“The comments clearly highlight that the BoE is wary that the pound could strengthen further weighing on core inflation.”
“He concluded that “despite these headwinds, a solid UK expansion underpinned by strong domestic demand growth leaves us on track to return inflation to target within two years” which is consistent with expecting limited and gradual rate hikes over the next three years.”
“It is consistent with our view that the pound should continue to perform relatively well this year, although downside pressures may intensify temporarily heading into and in the aftermath of the general election in May.”