Sterling Reacts Poorly to Carney’s Speech

The Great Britain pound sank today as Bank of England Governor Mark Carney said that interest rates would not be raised prematurely and that the strong currency may be detrimental to economic growth.
Previously, there were speculations that the BoE will raise borrowing costs sooner as unemployment was falling. Carney agreed that the 7 percent unemployment level, which is a threshold for considering higher interest rates, may be achieved faster than was expected, but reminded during his speech in Davos today:

It is widely recognised that our 7% threshold is not a trigger for raising Bank Rate. Last August, the MPC said that when the 7% unemployment threshold was reached, there should be no assumption of an immediate, automatic change to its policy stance.

He mentioned headwinds to growth, “the appreciation of sterling” among them, and said:

These persistent headwinds mean that, even in the medium term, the level of interest rates necessary to sustain low unemployment and price stability will be somewhat lower than before the crisis.

Such comments were ill-received by Forex traders, leading to the big slump of the UK currency.
GBP/USD sank from 1.6636 to close at 1.6499 today after touching 1.6667 intraday — the strongest price since May 2011. GBP/JPY tumbled from 171.79 to 168.69, while EUR/GBP jumped from 0.8230 to 0.8286.

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