GBP: Markets react to rumours around Carney predictions
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GBP: Markets react to rumours around Carney predictions

Risk sentiment waned on Monday last week as violence in Gaza escalated and geopolitical tensions intensified following the Malaysian airways crash.   There were also some rumours doing the rounds  on Friday  that BoE Governor Carney gave an interview to a weekend paper in which he appeared dovish on monetary policy.   It turned out to be a false rumour – he didn’t give an interview – but GBP/USD fell to a low of 1.7037 from 1.7115 on the whispers.

The pound then dropped again after the Bank of England minutes showed that MPC members voted unanimously to keep interest rates on hold at their last meeting.   The Committee also said that they had no pre-set view on the timing for a rate rise and it will depend on data.

There was also an acknowledgement that earnings data was weak in relation to the stronger employment data, indicating that labour market slack may be increasing.   With this, expectations for a rate hike are now being pushed back to Q1 2015.     The pound then fell again  on Thursday  after UK retail sales printed weaker than expectations, rising by only 0.1% in June from May vs. 0.2% exp.

By Alex Edwards at  UKForex, an international money transfer service

It finally got a boost later in the week after UK GDP data printed in line with market expectations.   Although it didn’t come as a surprise it confirms that the UK economy has recovered all of its losses from the financial crisis and that the economy is growing at its fastest rate since 2007.   It still doesn’t do too much for rate hike expectations though in our opinion.

The dollar has also been strengthening.   US jobless claims, a weekly data release, showed on Thursday that unemployment benefit unexpectedly dropped a week earlier to the lowest level in eight years – it’s another sign that the U.S. labour market is starting to gather momentum and will fuel expectations for the Fed to soon start signalling when they intend to raise interest rates.   If this happens we could well see GBP/USD trade back below 1.70 over the medium term.

Meanwhile EUR/USD has slumbered although it did get a lift from some positive PMI readings earlier in the week.   All manufacturing and service indices printed stronger than expected, except for French flash manufacturing PMI, which printed a little weaker than forecasts.   The pair finished the week close to 1.3450.

The two key releases this week will be European inflation data and US non-farm payrolls.   If the recent positive run of unemployment claims is anything to go by we could be in for another good number, which in turn could lead to further dollar strength.   Geopolitical tensions will also be at the forefront of investors’ minds.

Further reading:  EUR/USD: hammer pattern forming on the daily chart