Carney’s comments drive pound lower.
It has been surprising and maybe a testament to the amount of liquidity there is in the market that the pound has remained reasonably resilient to the negative factors that have dominated the market for the past month or so.
Yesterday, Mark Carney, the Bank of England Governor made a speech to the City in which he may have just started the fall in Sterling that, according to some, is long overdue.
Carney said that “now is not the time to hike rates”. Looking at the economy, on the one hand that is almost stating the obvious. However, on the other hand, given inflation which shows no sign of abating, rising at 0.2% per month, it is also dangerous and opens the possibility of a charge of “fiddling while Rome burns”.
The three dissenting voices on the MPC, Kristin Forbes, Ian McCafferty and Michael Saunders, have the luxury of reacting to data, Mr Carney must face to music and justify the ways in which the Bank of England is creating monetary conditions that comply with the Government’s economic policy.
Dollar benefitting from Interest Rate Differentials
It is perhaps unsurprising that President Trump, shooting from the lip, accuses other countries, most incredibly Germany, of being currency manipulators given his failure to grasp economic reality.
The “hocus pocus” spouted by various sectors of the Administration either pro or anti the performance of the FOMC ignores one simple fact; interest rate differentials are the single most potent factor in driving foreign exchange rates.
The economic data doesn’t really bear out the three hikes that have been seen already in 2017 but the stock market certainly does. Since a corrective fall of 258 points on May 17th the Dow has made that back and gone on to see just six (very minor) “down days” since.
If only Janet Yellen could come up with an expression like “irrational exuberance” to quantify her concerns or become more respected like a Greenspan or Bernanke the brakes could be applied. Unfortunately, the lack of respect shown by Trump despite his flip-flopping over rate hikes between campaign and Government has come close to destroying her credibility.
May facing a bleak future.
Finally, today sees the delivery of the Queen’s Speech to Parliament. The Queen herself may be the least interested person in attendance given that it is her “favourite week of the year”. Royal Ascot, the annual horse racing event held close to her home at Windsor Castle and given royal patronage since 1711 when it was founded by Queen Anne started yesterday.
On a more serious note however, Theresa May, the Prime Minister is going to face a barrage of insults, abuse and calls to resign when she rises to commend the speech to Parliament.
Her performance is her final chance. Having lost a majority which was hard fought for by her predecessor following five years of coalition infighting and backstabbing, Mrs May is now being seen as “unfit to lead”. This is an incredible turnaround from even the week before the election. The vote was perhaps the biggest shock in politics in recent years overshadowing, Cameron’s victory, Brexit and Trump.
Parliament leaves for summer recess on 21st July so the Government has a month to survive and it is not by any means out of the question that before the break an election could have been called for the Autumn