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Cable Drops Back Below 1.35 After Carney Walks Back Rate-Hike Comments

Courtesy of ZeroHedge. View original post here.

Having sent cable 4 big figures higher after his hawkish comments last week, BoE Governor Carney is out desperate to reassure markets he won't break anything by explaining that any rate hikes will be "limited and gradual." Cable has started to leak lower on the headlines…

“There remain considerable risks to the U.K. outlook,” he said, noting how consumers, companies and markets respond to progress in the Brexit process.

There are also global factors that justify tightening soon, according to the governor. In his view, the case is reinforced by the possibility that global equilibrium interest may be rising “meaning that monetary policy has to move in order to standstill.”

On Brexit, Carney said leaving the European Union will at least temporarily reduce the openness of the economy because any replacement deals with other trade partners will take time to be agreed and to have an impact.

While quitting the EU may have a disinflationary impact because the bloc is such a huge export market for the U.K., there's an inflationary upside from reduced migration and a smaller labor force, as well as less investment, which cuts the economy's potential growth. Carney has also called this a reduced “speed limit” for the economy.

He used a French phrase to sum up this view — “reculer pour mieux sauter” or “stepping back in order to jump better.”

Furthermore, Carney warned that the UK Economy is likely to underperform the G-7 average until mid-2018.

After reaching its stroingest since Brexit, cable is sliding, but the reaction is modest for now…

As we suspect the market's spike to a 60% chance of Nov rate hike was overdone…


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