Surprising markets with a more dovish stance than expected, Mark Carney, the governor of the Bank of England, said recently that the United Kingdom’s economy still had excess slack which needed to be considered before there could be any changes to monetary policy. As a result of his comments, the Sterling fell close to a 1-week trough and moved well off of last Wednesday’s 5-year high when FX traders still held expectations that the Bank of England might implement a rate hike in the near future.
As reported at 11:32 a.m. (JST) in Tokyo, the GBP/USD was trading at $1.6966, falling hard from the $1.7064 high established last Wednesday. The U.S. Dollar, meanwhile, continues to drift sideways as investors consider that the Fed is also likely to maintain a dovish bias, likely until mid-2015. The U.S. Dollar Index, accepted by FX traders as a reliable gauge of the greenback’s weight in relation to its major peers, was generally range-bound, trading primarily at the mid-point within 81.000 .DXY and 80.000 .DXY.
Carney’s comments caught investors flatfooted, especially because he only recently, and quite clearly, signaled that the BoE was on the verge of flipping its dovish bias to hawkish. Markets are clearly confused now as to the BoE’s likely direction, and with it, the direction of the Pound Sterling.