Economy

Pound drops on Carney rate comments

Pound drops on Carney rate comments”

The dollar edged back from one-month highs against a basket of currencies early on Wednesday as a tumble in crude oil prices pushed down USA yields, while the pound wobbled near a two-month low after Bank of England Governor Mark Carney shot down hopes of a British interest rate hike.

The Bank reduced interest rates to a record low of 0.25% in the wake of last summer's Brexit vote, but Haldane said despite the possibility that the economy could suffer as a result of Britain's departure from the European Union the time for the first increase in borrowing costs in a decade was fast approaching, and would come much more quickly than the City was expecting. In usual circumstances, the Bank would seek to "cool" the economy by raising interest rates and so constraining the money supply by making borrowing more expensive.

For three policymakers that justified undoing last year's rate cut, but Carney made clear he was in no rush to join them.

"Now is not yet the time to begin that adjustment", he said in an annual speech at London's Mansion House.

The Bank of England has responsibility for ensuring that inflation in the United Kingdom economy is maintained at a healthy level.

The Bank official said he had voted for no change at the MPC's meeting for two reasons.

If domestic data continues to point towards the health of the economy being less robust the mood towards Sterling could similarly sour.

Cable turned higher on the remarks, hitting an intraday high of 1.2700 after having touched session lows of 1.2590.

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Base interest rates across the Atlantic are set using the Federal Reserve funds rate, which is the amount banks and other institutions charge each other to borrow money held at the central bank.

The BoE launched a three-pronged stimulus package after the UK's Brexit vote, cutting rates to record lows, re-starting QE and launching a cheap funding scheme for retail banks in August.

While we agree with the consensus that interest rates are unlikely to rise in the short term, we will eventually see an increase from these historic lows.

The essence of his view is that with growth (especially) and inflation showing greater resilience than had been expected, there is a case for unwinding some of the policy insurance that the Bank of England put in place last August as it aimed to provide support to the economy after the Brexit vote.

First, despite upwards pressure on inflation, there are still few signs of higher wage growth.

The chief economist's comments come as the pound dropped below $1.26 before today's formal opening of parliament.

Trump's reversal on the Fed chief adds to the sense of supporting now accommodative monetary policy. "I think the odds of Janet Yellen being here next year are rising and I do think that is bullish for risk appetite".



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