The UK economy had been showing strong signs of growth and looked as if it was exiting the financial crisis faster than markets had expected. However the timing of the Bank of England’s rate rise has become the focal point of traders. Expectations vary by analyst though the median expectation is the first half of 2015, though there had been some belief the BoE might act before the year end.
Sunday Times Interview
This weekend the Bank of England Governor did an interview with the leading British newspaper the Sunday Times, “Carney: we’re halfway to recovery” which led to Sterling gapping higher at the Asian open on Sunday evening. The comments seemed to differ from what was said at the BoE Inflation Report press conference only a few days earlier. The comments in the interview were more hawkish, bringing traders’ expectations forward.
As traders attempt to gauge the timeline of interest rate hikes, the contradictory comments has led to criticism of Carney. Is the central bank governor playing a dangerous game of leaving the base interest rate at a record low at the risk of inflation, while verbally confusing traders?
Sterling had weakened from the multi-year highs, as macro data disappointed and geo-political events pushed investors towards safe havens. Traders had priced in a rate rise in the nearer term, which was then pushed back following the MPC rhetoric of gradual rate rises etc. However the comments in the Sunday Times put a significant bid into the pair, with analysts eyeing the BoE minutes release on Wednesday for direction.