Chairperson of an advanced countries' central banks might be much more important than president of a small country. In forex market, they are infinitely more powerful; central banks' governors statements has high impact on the direction of price movements. As is the case with Janet Yellen of US the Fed and Mark Carney of the Bank of England.
Chairperson of an advanced countries' central bank might be much more important than president of a small country. In forex market, they are infinitely more powerful; central banks' governors statements has high impact on the direction of price movements. As is the case with Janet Yellen of US the Fed and Mark Carney of the Bank of England.
Earlier this month, Janet Yellen officially replaced Ben Bernanke as US the Fed's governor. Yellen is known as a Keynesian with dovish tendencies. Dovish means that she focuses more on resolving unemployment than raising interest rates. In congressional hearing last November, she spesifically mentioned the problem of unemployment, while emphasized her belief that the Fed policies so far has been on the right track in leading US economy toward recovery. It implied her aversion on the topic of increasing interest rates (note that high interest may negatively affecting job market), as well as demonstrating her commitment to continue what has been pioneered by Bernanke (that is, tapering).
Yellen's testimony didn't create any big wave at the time (11/2), but her statement in regard of tapering might be the main reason why Dollar fell since last week against most of its main rivals. Disappointing US economic reports, especially retail sales and jobless claim reports, have planted a question on whether the Fed will slow the pace of Tapering. To answer any lingering doubts, the market relies on the release of FOMC meeting minutes and CPI reports next Thursday. Any surprises could mean reversals on the direction of USD this month, or contrarily, plunge it further.
Carney's Pledge
Another dovish governor is Mark Carney of the Bank of England. In order to support UK economic recovery, he's been keeping low rate at 0.5% and launching Funding for Lending scheme. He also indicated that BoE will consider raising key rate if unemployment fall to 7.0%. This might be the reason why GBP crawled higher after quarterly inflation report last week. In the report, BoE upped economic growth projection from 2.8% to 3.4% and estimated unemployment to touch 7.0% treshold on spring this year. The market applauded it because it means that an interest decision is within sight.
In another word, don't wish for an interest rate hike in the near future. Especially if what some analysts said about UK labor market contraction for the next few months come true. Is this mean GBP rally ended? Well, it's up to UK CPI and unemployment reports on Tuesday and Wednesday. GBP long-term outlook remains bullish, but we can expect profitable shorts here and there.
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