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Carney takes heat out of the pound

Currencies Direct May 15th 2014 - 2 minute read

Yesterday’s quarterly inflation report delivered a more dovish
tone than expected and cooled appetite for the pound. Growth and
inflation forecasts remained the same as the previous quarter but
Carney played it with a straight bat and did not talk about raising
rates as a result of positive growth indicators. The perception of
slack in the economy was not altered much from previously and
Carney noted that there is still more slack in the economy to be
used up before the Bank of
England
will hike interest rates.  Carney also noted that
when the tightening cycle does commence it will be slow and gradual
and not to the same levels as before the financial crisis. The
pound fell on the report even despite a fall in the unemployment
rate as Carney took the heat out of early rate rise chatter.

Today we have GDP from many of the Eurozone countries and also
overall Eurozone GDP.  Eurozone GDP is expected to show growth
at 0.4 per cent and if positive it will show the fourth consecutive
quarterly growth for the Eurozone.  However a number below
expectations will put further pressure on the euro as the market
jostles to price in expected monetary policy easing by the European
Central Bank in June.  The key question now for the markets is
what will the ECB do in June. Noise from the markets point towards
a cut in the deposit rate and a new liquidity injection to the
LTRO.  The ECB will publish its monthly bulletin today and
focus will be on inflation expectation. 

In other news Japan’s economy expanded by 5.9 per cent on an
annualised basis in the first quarter of the year which is the
highest growth report in three years and was related to an increase
in consumer spending.   


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