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Pound Consolidates Gains On Carney’s Caution

Published 19/09/2017, 11:36
Updated 18/08/2020, 10:10

Sterling is pulling back further this morning after falling yesterday afternoon following a speech in Washington from BoE Governor Mark Carney that has taken some of the air out of the recent rally. The drop in the pound has supported the FTSE 100 with the benchmark edging higher in early trade as it looks to repair some of the damage done last week in falling to a 4-month low.

Carney checks hawkish momentum

A pronounced hawkish shift was apparent in the release of the Bank of England statement last Thursday before Friday saw BoE’s Vlieghe, arguably the most dovish member of the rate-setting committee, join the growing chorus of calls for an imminent rate hike. The markets were clearly caught wrong footed and a rapid repositioning in sterling saw the currency experience its largest weekly rally in 8 years. However, yesterday saw Governor Carney err on the side of caution as he stressed during a speech for the IMF that rate hikes are expected to be “gradual and limited” which saw a pullback in the pound.

Rate hikes: one and done?

Whilst Carney followed a narrative in keeping with a rate hike before year-end, this has already been priced-in to a fair extent and his caution as to further increases has weighed a little on the pound. Sterling remains at firmly elevated levels compared to the start of last week and whilst it would be premature to call a top purely on Carney’s comments, the speech has caused the pound to at least pause for breath following its incredible recent rally. UK retail sales data is due out tomorrow before the widely viewed Fed rate decision in the evening and these two are likely to provide the catalyst for the next move in the GBPUSD.

Supermarkets lift the FTSE

The inverse correlation between the pound and the FTSE has grown in recent sessions, with this evident once more this morning as UK blue-chips are rising whilst sterling pulls back. The best performers on the day are supermarkets with Morrison, Sainsbury and Marks & Spencer all rising close to 2%. The rise is due to an associated drop in mid-cap Ocado (LON:OCDO), with the online grocer tumbling close to 5% despite reporting a 13% increase in revenue for the last quarter. The rise in recent years of Ocado has threatened to disrupt the supermarket hegemony but the status quo appear to have received a boost this morning with the share price of Ocado falling as investors are seemingly looking through the rise in sales and disappointed with the business’s growth plans going forward.

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