BoE Mark Carney Boosts Pound Following Labour Data Losses

GBP/USD has been on a rollercoaster ride today and could still see more volatility to come. GBP/USD dropped in early trade as the UK unemployment level unexpectedly ticked higher to 4.4%, from 4.3%. UK earnings growth was also interpreted as soft, giving investors little reason to cheer. Wage growth at 2.5% still remains firmly below inflation at 3%, meaning that there is no sign of the squeeze on the consumer letting up. Following the release GBP/USD sold off to $1.3908.

Comments by the Bank of England Governor Mark Carney, in addition to three MPC members before the Parliamentary Treasury Select Committee this afternoon have boosted the pound, enabling it to recover all of the day’s earlier losses. Carney pointed out that wage pressures are firming and that the impact of the weaker pound on inflation could last for years. These comments in addition to him saying three rate rises over three years, was enough to send GBP/USD back towards $1.40.

FOMC minutes in focus

Looking ahead, investors will be watching the release of the FOMC minutes from the January meeting, this evening at 19:00 GMT.

The Federal Reserve left rates unchanged at the January meeting. It was last FOMC under the leadership of Janet Yellen, who said that inflation was likely to rise this year. These comments from Yellen suggest that interest rates are expected to continue to rise under the new Fed Chair Jerome Powell.

The minutes are expected to add more light to what was perceived to be a marginally more hawkish Fed meeting. The minutes could also provide some rationale as to the upgrade in the inflation outlook. However, the minutes will not be able to shed any light or views on the recent financial market turmoil, which saw volatility spike in the US stock market spike and declines of 10%, as investors sold out on fears of the Fed hiking rates faster than was initially expected. The increase in treasury yields and the strong core print in CPI for January, occurred since the meeting, therefore will not appear in the minutes.

With this in mind, the minutes from the January meeting could be a bit of a disappointment for the market and provide little fresh, relevant information given recent developments. Should this be the case, the impact on the dollar could be limited and market participants will be looking towards new Fed Chair Jerome Powell first public comments in his appearance before Congress on 28th February.

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