Sterling dropped to its lowest level since Theresa May called a snap election in mid-April after a dovish intervention from Mark Carney in an increasingly heated debate over interest rates within the Bank of England.
The Pound had already fallen after it became clear that Mrs May’s gambit hadn’t paid off, but yesterday’s drop was less about politics and more about macroeconomics. Mr Carney, BoE governor, kicked off the morning saying “now is not yet the time” to tighten monetary policy.
Carney's comments were the first since three members of the BoE’s monetary policy committee voted to hike interest rates from their historic lows on concerns of climbing inflation. The hawks were outnumbered by five other votes, but it market the tightest decision in six years.
Due to concerns of a slowdown in consumer spending and disappointing wage growth, Mr Carney urged caution in any shifts to monetary policy at his Mansion House address this morning.
“I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations”, said Mr Carney.
Even despite the hawkish elements in the ranks of the Monetary Policy Committee last month, most analysts expect a personnel shake-up on the committee to shift the emphasis back to “neutral”.
The dollar hit a three-week high on Tuesday, boosted by comments from the U.S. Federal Reserve bolstering expectations that it would keep raising interest rates, as sterling skidded on the opposite message from the Bank of England.
New York Fed President William Dudley said on Monday that tightening in the U.S. labour market should help drive up inflation, reinforcing the message that a recent patch of weak data is unlikely to derail plans to keep raising interest rates, after two hikes so far this year, with investors pricing in around a 50 percent chance that rates will be raised again by the end of the year.
The greenback has edged higher since the Fed on June 14 raised interest rates for a second time in 2017 and announced it would begin cutting its holdings of bonds and other securities later this year, while indicating that a recent softening in inflation was seen as transitory.
15.30 – USD – Crude Oil Inventories; Forecast -1.2M against previous of -1.7M