HuntedRelated

British Pound Gives Away 2014's Best Exchange Rate Levels as Bank of England Hawks Turn to Doves



Above: Bank of England Governor Carney presents the main event-risk for the GBP on Tuesday.

The pound sterling (GBP) has withdrawn from recent highs and no longer offers currency market participants the best exchange rates of 2014.

The reason the GBP has come under pressure on Tuesday lies with the Bank of England's top team who are currently in front of the Treasury Select Committee (TSC) where they are giving parliamentarians a quarterly update on policy at the Bank of England.

From what we are hearing it would seem the Bank is not as eager to raise interest rates as markets initially assumed. The reaction in the forex markets is notable:

• The pound to euro exchange rate (GBP/EUR) is trading 0.38 pct in the red having reached 1.2472.
• The pound dollar exchange rate (GBP/USD) is trading 0.24 pct in the red at 1.6988.
• The pound to Australian dollar (GBP/AUD) exchange rate is 0.04 pct lower at 1.8067
• The pound to Canadian dollar (GBP/CAD) is 0.32 pct in the red at 1.8220.

Please be aware that the above mid-market quotes are subject to a discretionary spread levied by your bank when making international payments. An independent FX provider will however seek to undercut your bank's offer and in some instances can deliver up to 5% more currency on execution.

What is the Bank of England saying?

Deputy Governor Charlie Bean has told the TSC that there is still more 'slack' in the labour market - i.e productivity amongst the workforce remains suppressed. The idea here is that interest rates can be kept low as long as this productivity problem persists.

Further, Bean said he prefers the case for a later than earlier exit from stimulus - sterling exchange rates are currently priced for an earlier exit, so this is not what the bulls want to hear.

Governor Carney also mentioned that wage data has been softer than expected.
The testimony is ongoing and we would expect volatility to remain elevated.