Carney gives the pound a boost

Yesterday Mark Carney delivered the quarterly Bank of
England inflation report.  He had the difficult task of
convincing the markets that interest rates will not rise soon even
with the back drop of improving growth forecasts and falling
unemployment.  The markets were not convinced and we have seen
a further hawkish reaction to the expectation that interest rates
will in fact need to rise sooner than the BoE thinks and
importantly before other major central banks such as the US and the
European Central Bank.  This has given the pound a sharp boost
in the markets against most of the major currencies including the
USD and the euro.  Mark Carney did introduce a shift to a more
qualitative forward guidance stance (similar to the US) but this
was not enough to calm the expectation of the markets. 

The announcement yesterday will put the pound on a pedestal in
the
FX markets. The European Central Bank are expected to ease
further in the spring and this should see further momentum for
GBP/EUR given this scenario.  It will be now very interesting
to see if the US Federal Reserve continue to taper at the same pace
given recent weaker US labour market data.  If we see a sign
of a softening in the tone from the Fed we could see further upside
potential for GBP/USD. 

For today we have US retail sales later with the risk mainly to
a weaker number and we also have US initial jobless claims which
are expected to be flat at 330k.   Also today the ECB
will publish its monthly bulletin which will include long term
inflation forecasts which will be of note given the recent decline
in inflation for the euro area.  The current long term
expectation is 1.9 per cent and a fall from this could add more
pressure to the European Central Bank to ease policy further.

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