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Foreign Exchange

Weekly review: Counting on Carney

No one likes to say: “I told you so.”

However, when it comes to newly appointed Bank of England (BoE) governor Mark Carney, Euromoney Magazine tipped its hat to the Bank of Canada (BoC) governor and chairman of the Financial Stability Board in September, naming him central bank governor of the year 2012. And then, in October, Euromoney Magazine profiled Carney at length, praising his reformist muscle and dynamism in leading the Canadian central bank.

However, what does the impending Carney-val in the BoE leadership post mean for sterling and the long-term strength of the UK economy?

The truth is no one knows, in part because Carney’s reign has seen the CAD achieve a sort-of reserve currency status bolstered by commodity fundamentals. The story is different for the pound.

A populist view though paints Carney as a currency hawk because the BoC still has a mild tightening bias in place at a time when most other G10 central banks are easing or have an easing bias.

In Japan, there’s a different central bank story developing, as former Japanese premier and Liberal Democratic Party leader Shinzo Abe positions himself to become prime minister again in elections set for December 16.

Abe thinks that deflation and a strong yen are Japan’s biggest economic problems, and he has said he would be willing to undermine the independence of the Bank of Japan if he becomes prime minister by calling on the central bank to undertake “unlimited monetary easing until inflation reaches a target of up to 3%”.

The yen has been weakening lately as Abe’s pronouncements begin to hit home, but Merk Investments CIO Axel Merk thinks there is something more fundamental going wrong in Japan and that the time has come to begin shorting the yen.

Leaving the macro picture behind, Icap-owned FX exchange EBS announced this week it is refining its existing brokerage offerings to second- and third-tier banks with the launch of a new last-look platform called EBS Direct.

The success of the platform though will depend, as ever, on brokerage fees, as EBS Direct looks to compete with FXall, Currenex, 360T, Hotspot FX and the rest of the multi-dealer platform (MDP), last-look universe.

Speaking of MDPs, Bloomberg announced this week its users can now receive live interbank pricing for CNY and CNH through a new real-time service on the company’s eponymous terminals.

The data is being streamed to Bloomberg terminals courtesy of the China Foreign Exchange Trade System, which is the FX division of China’s central bank the People’s Bank of China.

As usual, there has been plenty going on in the FX market. We look forward to seeing you next week.

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