Forex: British Pound Stands at Attention Before Key Carney Speech

The British Pound will be all ears as Mark Carney delivers his first official policy speech since taking over as the Governor of the Bank of England.

Talking Points

British Pound May Weaken if Carney Speech Strikes a Dovish Tone
Aussie, NZ Dollars Slump as Syria Jitters Drive Risk Aversion in Asia

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The first official policy speech from Bank of England Governor Mark Carney is in focus in European trading hours. He is expected to discuss the new forward guidance introduced at the bank’s last policy meeting. The scheme amounts to a pledge to keep the benchmark lending rate at a record-low 0.5 percent as long as inflation 18-24 months is seen below 2.5 percent and the unemployment rate is above 7 percent.

The British Pound rose after the guidance regime was announced, apparently reflecting investors’ expectation that the BOE’s conditions for reevaluating the policy have been set such that they will be hit before the bank envisions. With that in mind, a dovish tone that talks down the likelihood of a premature, forced move away from an accommodative posture may weigh on the UK unit.

The sentiment-linked Australian and New Zealand Dollars underperformed against their top counterparts as Asian stocks followed Wall Street lower overnight. The MSCI Asia Pacific regional benchmark equity index fell 0.7 percent. Risk aversion appears to reflect swelling geopolitical risk amid signs that the US and its allies are preparing to strike Syria following reports of the government’s use of chemical weapons against anti-regime rebels.

The prospect of direct Western involvement in Syria’s bloody civil conflict is driving concerns about spillover into wider regional turmoil. Negative economic growth implications of such an outcome – particularly the possibility of a major disruption in oil delivery – are unnerving investors. Indeed, crude prices have shot upward to probe the highest levels in over two years. The US Dollar was best-supported on the session, adding as much as 0.3 percent on average against the majors.

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Asia Session:

GMT

CCY

EVENT

ACT

EXP

1:20

AUD

CBAHIA House Affordability (2Q)

72.8

–

69.7

1:30

AUD

Construction Work Done (2Q)

-0.3%

1.0%

-1.9%

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT