With several significant economic reports for the UK on the cards this week, the Pound got off to a bit of a mixed start on Monday.
While Sterling was holding a firmer position against the US Dollar, it fluctuated modestly against the Euro in response to yet more cautious comments from Bank of England Governor Mark Carney.
In last week’s BoE inflation report the central bank chief stressed that the degree of slack in the economy meant that interest rates should remain on hold for the foreseeable future.
Carney also intimated that a surge in self-employment is giving a false impression of how well the domestic labour market is performing.
As a result of Carney’s remarks the Pound shed gains against several of its most traded peers and fell from multi-month and multi-year lows.
While Sterling went on to recoup some of these initial losses and advance on the US Dollar, the currency put on a patchy performance against the Euro.
Some investors lost faith in the Pound after Carney intimated that the UK’s hot housing market poses a serious economic threat.
Carney stated that the surge in house prices is the ‘biggest risk to financial stability’ and that a range of measures could be introduced to counter the issue.
The Pound also came under pressure as Carney noted that the strength of the local currency is a headwind to exporters.
In the view of senior currency strategist Geoffrey Yu; ‘The UK housing market has a deep structural issue that could undermine the economy and is negative for the Pound. It’s unlikely the Bank of England will use an interest-rate increase as a policy tool to rein in the market, unless as a last resort’.
However, Pound losses were tempered after Deputy Prime Minister Nick Clegg asserted that the ‘Help to Buy’ scheme which contributed to the rapid increase in UK house prices could be scaled back.
Clegg said; ‘I think if [Carney] says that we need to pare back on some of the government schemes like Help to Buy, then I think we should do so.’
Tomorrow Pound movement is likely to occur following the release of the UK’s consumer price index.
If the report shows that the pace of consumer price inflation quickened in April, as economists expect it too, Sterling could recoup losses and trend higher on Tuesday.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6827,
Pound Sterling,,Euro,1.2269,
Pound Sterling,,Australian Dollar,1.7994,
Pound Sterling,,New Zealand Dollar,1.9480,
US Dollar,,Pound Sterling,0.5940,
Euro,,Pound Sterling,0.8150,
Australian Dollar,,Pound Sterling,0.5560,
New Zealand Dollar,,Pound Sterling,0.5133,
[/table]
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