Bank of England Governor Mark Carney, the first non-British Bank of England Governor, delivered his maiden speech today after he failed to score with financial markets after the release of minutes from his maiden Bank of England MPC meeting where the announcement read that interest rates will remain at record lows until the unemployment will retreat below the 7.0% level which is not expected until 2016.
Carney drew plenty of criticism for the way he oversaw the first meeting and his proposed changes in communication as well as guidance released to the market. The UK economy has shown signs of recovery and UK Guilds have been on the rise since then which will spill over to higher long-term interest rates which some view as negative for a still fragile UK economy as well as a struggling global economy.
Inflation is well above the Bank of England comfort zone and a recovery in the UK economy, albeit at a much weaker than hoped for rate, will put upward pressures in inflation which is currently being tolerated at higher levels for the sake of keeping the economic recover alive. Should inflation and inflationary pressures increase or maintain its current level the Bank of England may be forced to increase interest rates much sooner than what Carney has pledged.
The British Pound Sterling has been on the rise as a rate increase is expected much sooner than what the Bank of England under the helm of Mar Carney communicates with the markets. While he was known for his forward guidance while at the Bank of Canada, he has not had the same success convincing investors that the Bank of England can maintain the stimulus until 2016 without adding to already high inflation levels.
Carney has to battle a severe divide among top policy makers as their views on what should happen next are divided. Carney may be the best central banker in office right now, but he has plenty to prove as there are multiple challenges he has to face. Carney may have underestimated the task he was given and we should give him a few more MPC meetings before we make any judgment call as the verdict right now is not great.
The GBPUSD has eclipsed past the 1.5600 mark and briefly touched the 1.5700 level and a correction was in the making. Look out for this currency pair to drop down below the 1.5400 mark, but form a higher low than its previous one which is a bullish signal. Overall the GBPUSD should continue its ascend and end 2013 above 1.6000 due to a combination of USD weakness and GBP strength.
Written by Paxforex