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Sterling stumbles as UK markets take dovish signal from Carney

August 14, 2014


THE POUND dropped sharply against the dollar yesterday, as markets took a dovish message from the Bank of England's update on the economic climate.

Sterling plunged to its lowest level in two months as governor Mark Carney spoke, with analysts suggesting that the Bank's latest inflation report was backtracking from the governor's more hawkish tones in June.

Societe Generale economists pushed back their forecast for the Bank's first post-crisis interest rate hike, and now argued that the increase would not probably take place until early 2015. RBC Capital Markets added that market exp-ectations for the eventual tightening shifted three months to next April.

Carney's comments at his Mansion House speech in June had the opposite effect - the governor indicated that rates could rise before markets expected.

The Bank's statement on unemployment also weighs against the idea of an early interest rate hike. During last year's inflation report, the Bank estimated that 6.5 per cent would be a roughly healthy level of unemployment for the economy. However, the labour market has improved much more rapidly, and the Bank has cut its expectation to 5.5 per cent.

The FTSE 100 also made gains during the day, hitting a high of 6,664 during the day, and ending up 0.37 per cent on the previous close at 6.656.68.



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Source: City A.M. (UK)

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