Pound Drops, Driven by Dovish Comments from Carney

The Great Britain pound dropped today against the majority of most-traded currencies as UK policy makers tempered bets on interest rate hikes in near future by their dovish comments. Market participants, who have thought that central bank will tighten monetary policy soon, were unprepared for this.
Bank of England Governor Mark Carney together with some other Bank members were speaking today at the Treasury Committee Hearing about the Inflation report, and their comments were unexpectedly dovish. Carney said:

Developments on the wage front suggest to me that there has been more spare capacity in the labor market than we had thought.

While the Governor did not altogether scrap the plans to raise interest rates in the foreseeable future, he damped monetary tightening expectations:

As the economy progresses, the time to normalize interest rates is edging closer. What’s most relevant is our view that those adjustments will be to a level of interest rates, through a gradual process, that’s likely to be materially lower than historic averages.

Today’s comments were a stark contrast to the previous words of policy makers, which made traders think that an increase of rates is imminent. It made the pound soft, and this was not surprising considering that the currency was rising mostly due to expectations of higher borrowing costs.
GBP/USD was down from 1.7027 to 1.6976, and GBP/JPY dropped from 173.54 to 173.23 as of 17:49 GMT today. EUR/GBP went up from 0.7989 to 0.8007, reaching the daily high of 0.8024.

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