GBP Plummets as Carney Casts Doubts over May Rate Hike

Mark Carney

The Bank of England is expected to raise interest rates next month but Mark Carney cautioned that it might not happen Credit Cole Burston Bloomberg

Sterling took another leg down on Friday to $1.4060 after falling almost 1 percent in the NY session after Carney said that a rate hike this year was "likely".

"The biggest set of economic decisions over the course of the next few years are going to be taken in the Brexit negotiations and whatever deal we end up with", he told the BBC.

Investors' bets on a hike shrank to around 40 per cent from 70 per cent earlier this week, according to Reuters estimates derived from the swap markets.

Rate rises could come faster then expected.

Saunders' comments contrast with those of Mr last night, who cautioned markets yesterday that a rate rise in May is not a certainty.

The Bank of England will reveal on May 10 what decision the MPC has made on rates. Earnings, inflation and retail sales all down.

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"Despite the recent softness of United Kingdom inflation, we expect him to reiterate his call for a near-term United Kingdom rate hike", says Nikesh Sawjani, an economist with Lloyds Bank Commercial Banking.

But inflation fell back to 2.5 per cent from 2.7 per cent in March, a one year low, easing pressure on the Bank to act.

Connor Campbell, financial analyst at SpreadEx, said: "There was a slight improvement from sterling as Friday went on, thanks to a hawkish rebuke to Carney's Thursday dovishness from MPC member Michael Saunders".

However, he noted that Carney's cautious tone was not bad news for everyone. "The UK index jumped around half a percent after the bell [on Thursday], sending it to a fresh 11-week peak of 7360".

Attempts by the Pound to mount a recovery later in the afternoon also proved to be short lived following comments by Bank of England (BoE) Governor Mark Carney late in the day.

Mr Carney also emphasised the impact of uncertainty surrounding the UK's future trading relationship with the European Union, saying it had "prevented what would otherwise have been a surge in investment in this economy".

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