Pound muted as BoE’s Carney warns of Brexit impact

The pound was left adrift yesterday, with the UK currency struggling to find support following a Brexit warning from the Bank of England’s (BoE) Mark Carney.

Sterling continues to trade in a narrow range this morning, with GBP/EUR range bound at €1.1170, GBP/USD flat at $1.2701 and GBP/CAD muted at C$1.6670, while GBP/AUD and GBP/NZD both hold steady at AU$1.8160 and NZ$1.9016 respectively.

We may see the euro left out on a limb today, with another subdued inflation reading from Germany likely to increase speculation that the European Central Bank (ECB) will pursue a rate cut this year.

What’s been happening?

The pound remained subdued during yesterday’s session as BoE Governor Mark Carney was grilled by Parliament’s Treasury Select Committee.

This saw MPs mostly focus on Brexit. Carney responded by stating that the ongoing uncertainty was damaging the UK economy and warned that the bank could react to a no-deal Brexit by lowering interest rates, although he stressed that this response would not be ‘automatic’.

The euro was left equally muted on Wednesday following the publication of Germany’s latest consumer confidence figures, as sentiment slumped to a two-year low in July amid concerns over job losses in the automotive industry.

Meanwhile, the GBP/USD exchange rate also remained flat yesterday as the US dollar was undermined by another sharp decline in US durable goods orders in May as well as Trump’s attack on Federal Reserve Chair Jerome Powell.

What’s coming up?

Looking ahead, today’s session is likely to be focused on the publication of Germany’s latest Consumer Price Index later this afternoon.

The euro could struggle today if inflation in the Eurozone’s largest economy stalled as expected this month, with another subdued reading likely to put more pressure on the ECB to lower interest rates later this year.

Meanwhile, the US will publish the final release of its first quarter GDP report this afternoon. The data could support the US dollar if growth is confirmed to have expanded in line with previous estimates.

Finally, a lull in notable domestic data is likely to see GBP investors turn their focus back to UK politics, likely limiting any potential upside in the pound as uncertainty continues to run rampant.