Sterling Recovers Early Losses on Carney Optimism

Fundamental analysis of Forex market

Mark Carney and his colleagues, like the pound, came through the Bank of England meeting relatively unscathed it seems, although when it comes to the latter, there were some hairy moments.

The event got off to quite a shaky start as the central bank released its latest forecasts showing GDP growth this year suffered its biggest downward revision since August 2016, at the same time projecting the weakest year of growth since 2009. Coming on the same day that the European Commission significantly revised down its forecasts for the euro area, it doesn’t bode well for 2019, a year that many already had expected to be challenging.

Despite that rocky start, the pound gradually recovered throughout the press conference to trade flat on the day against the dollar, having been down by more than half a percent at one point. Carney’s more upbeat tone on the country’s prospects in the event of a deal was likely an important factor in this, while he’ll no doubt also be pleased with his ability to dodge those questions that threatened to put him on the front pages for the wrong reasons, again.

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While it’s interesting to hear the central banks views on the outlook, despite the huge uncertainty that still exists – something he repeatedly referred to as “fog” – it’s clear that we’ll have to wait until May to get a better idea on the path of interest rates. Not only will the Brexit fog have cleared, we’ll also have a better idea of whether the global economic slowdown is progressing as is now widely expected.

Carney was keen to stress that the economic fundamentals remain sound which means that assuming the backlog of investment and consumer spending exists, due to lower spending in the run up to Brexit, the economy could weather the global slowdown quite well. Whether the BoE would be brave enough to raise interest rates in that scenario though I’m not convinced.

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