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Foreign Exchange

Carney set to put sterling to the test

The Bank of England’s (BoE) monetary policy committee meeting on Thursday is likely to be overshadowed by an appearance in the UK parliament from Mark Carney, the central bank’s governor elect.

Carney is set to be questioned by the Treasury select committee on Thursday, ahead of the announcement of the Bank’s policy decision.

With the economic outlook broadly unchanged since its last forecasts in November and the minutes of its last policy meeting in January slightly more hawkish than at its previous gathering, the BoE is widely expected to leave interest rates and its asset purchase scheme on hold at 0.5% and £375 billion, respectively.

Carney’s performance will, therefore, be of more importance to sterling watchers, who have seen the pound come under pressure since the start of the year as haven flows from the eurozone reversed and as concerns over the UK’s relationship with Europe undermined the currency.

Indeed, any sign of dovishness from Carney will be seen as an excuse to sell sterling, given the attention gained in the UK of his mention of nominal GDP targeting and interest-rate guidance in a speech last year.

 UK nominal GDP gap - no problem until the financial crisis
 

However, before sterling bears get too excited, Carney is unlikely to pull the rug from under the pound.


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