BoE Governor Mark Carney turns unexpectedly hawkish

Fundamental Analysis

GBP

"Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional."

— Mark Carney, Bank of England

The Bank of England Governor Mark Carney said on Wednesday that the Monetary Policy Committee might need to start raising interest rates soon, adding that the BoE's interest-rate decision would be discussed in the next few months. Carney's unexpectedly hawkish comments pushed the Sterling to its new session highs. In the meantime, the GBP/USD hit its highest level since the June 8 election. Earlier, Mark Carney stated that it was not yet the time to step on the path of interest rate hikes despite surging inflation. Furthermore, on Wednesday, the Governor said that at the June 15 meeting it was necessary to leave the Bank's interest rates unchanged due to "the mixed signals on consumer spending and business investment". On June 15, five out of eight policymakers voted to keep monetary policy and rates on hold. According to the BoE, inflation is set to rise above 3% in the upcoming months, well above the Bank's 2% target. Carney stated that in order to begin raising rates he would focus on household consumption and the economy's reaction to the country's withdrawal from the European Union.

USD

"The most interesting thing is crude oil production was down ... which is a significant decline given the increases in previous weeks."

— Andrew Lipow, Lipow Oil Associates

Pending home sales in the United States dropped for the third consecutive month in May, official figures revealed on Wednesday. The National Association of Realtors reported that pending home sales fell 0.8% last month, following April's downwardly revised drop of 1.7% and falling behind market analysts' expectations for an increase of 0.9%. According to Wednesday's data, supply shortages mainly drove the fall. The supply of homes available for sale dropped more than 8% year-over-year in May. Other data released on Wednesday showed that US crude oil inventories rose 0.1M barrels in the week ended June 23, following the prior week's drop of 2.5M barrels, whereas analysts anticipated a drop of 2.1M barrels during the reported week. Meanwhile, weekly production declined 100K barrels per day to 9.3M bpd, marking the largest fall since July 2016. However, some analysts suggested that the production decline was temporary and was triggered by the Cindy Storm in the Gulf of Mexico and maintenance works in Alaska. Despite the unexpected US crude inventory build, oil prices rose shortly after the release.

CAD

"It does look as though those cuts have done their job. But we're just approaching a new interest rate decision so I don't want to prejudge."

— Stephen Poloz, Bank of Canada

The Bank of Canada Governor Stephen Poloz reported on Tuesday that interest rate cuts made in 2015 after the sharp oil price drop had done their job. Back in 2015, the Bank's key interest rates were cut twice but a distinctly more hawkish tone recently from policymakers in recent days has boosted the probability of a rate hike by the end of this year. The chance of a July rate hike climbed to 43% on Wednesday from 30% the day before. Poloz said that the country's major regions had been experiencing strong growth, however, the economic development phase differed from place to place. Also, he said that despite unexpectedly strong economic performance during the March quarter, economic growth would likely moderately slow in the upcoming quarters. Apart from that, the BoC Governor noted that the United States were two years ahead of Canada because of the recent oil price shock that forced the Bank to cut rates. In addition, Poloz said that uncertainty of the NAFTA's fate was putting downward pressure on businesses, adding that the NAFTA agreement was very crucial for the Canadian economy.

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