The Bank of England Governor Carney optimism about growth makes rate hike chances clearer

The chances of the Bank of England moving forward with the rate hike in August increased after the Bank of England Governor Mark Carney sounded upbeat on the UK economy belittling the Brexit uncertainty concerns.

In terms of the UK economic outlook, Carney basically confirmed the message from the June meeting of the Monetary Policy Committee (MPC) saying “the incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate.”

While speaking at the Northern Powerhouse Business Summit in Newcastle on Thursday, July 6, Carney also confirmed that the number of indicators of household spending and sentiment has bounced back strongly from what increasingly appears to have been an erratic weakness in the first-quarter., including strong UK labor market and there is widespread evidence that labor market slack is largely used up. In term of pay and inflation, Carney indicated that domestic cost growth continuously firmed in line with exp[ectations while the headline inflation is still expected to rise in the short term because of higher energy prices.

Carney confirmed the Bank of England MPC readiness to act on rates as soon as this August saying the policymakers will have enough information about the evolution of the UK economy even after the Office for National Statistics (ONS) rescheduled its macro data release calendar.

Although Carney made no direct policy changes hints in his speech, the market reaction was Sterling positive as the affirmative tone of Carney’s speech aligns with the Bank of England’s hawkish twist in June, when the number of voters favoring the rate hike increased to three policymakers with Bank of England chief economist Andy Haldane joining in the camp of external hawks Ian McCafferty and Michael Sauders to form 6-3 voting pattern.

Technically, the GBP/USD broke away from the downward sloping channel entering short-term uptrend above 1.3200. Technical oscillators like Momentum and the Relative Strength Index flattened in the neutral zone while Slow Stochastics made a bullish crossover also in the neutral zone. The GBP/USD should be supported by 1.3200 level and seen supported fundamentally by Carney’s policy view targeting 1.3280-1.3300 resistance zone on the upside.

GBP/USD 1-hour chart