After inflation data came out better than expected, this blow to the pound came from left-field: Governor Mark Carney was at his most dovish, seeing gloom and saying it is not time to raise rates.
GBP/USD made a spectacular drop to lows last seen in March 2009, when the Bank of England last changed its rates. Cable has touched a low of 1.4206, below 1.4220 seen in 2010, a low from where the pair began a gradual ascent. Only the 1.40 level provides some support, just because it is round. The post crisis low awaits at 1.35.
Carney spoke in the University of London and said that before raising rates, they need core CPI “notably nearer the 2% target”, faster growth and faster domestic cost growth. And that “they’ll do the right thing at the right time” and now is not the time to act. This is different from the stance of the Federal Reserve. However, like the Fed, he says that rates could rise before CPI hits 2%.
When comparing to the US, he did not a tighter fiscal stance (criticism at Osborne?) and also more exposure to global weakness. Among the causes for the lack of inflation one can find the strong exchange rate, the collapse in oil prices and financial contagion from China and other emerging markets.
What about getting a clearer picture about rates at the turn of the year? Well, the picture is clearer but also darker. Citing all the above, the conclusion is: no rate hikes.
Tomorrow we’ll get the employment figures including the wage data. Here is how to trade the British wages with GBP/USD.
UpdateÑ the slide continues with a rapid fall to 1.4166.Get the 5 most predictable currency pairs