Forex: EUR/GBP strengthens on Carney comments in Davos

on Jan 24, 2014
Updated: Oct 21, 2019
Listen Friday, January 24th:_ The EUR/GBP initially fell today to an intraday low of 0.8208, but found support at the 89-hour simple moving average, and then started to rise. The uptick was supported by comments from UK officials, an ECB announcement and other economic data.

The European Central Bank today announced that next week Eurozone banks will return €3.77 billion in crisis loans to the ECB, which was significantly more than expected. This suggests that the financial sector in the euro area is gaining strength.
Bank of England (BoE) governor Mark Carney said today in a speech in Davos, Switzerland that policy makers will review forward guidance in February, when the central bank publishes its quarterly Inflation Report and new economic forecasts. He pledged to help the economic recovery by maintaining loose policy for some time.

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Carney is defending his flagship policy after UK unemployment dropped faster than expected towards the seven percent target level, which will prompt the BoE to contemplate a rise in the record-low interest rate of 0.5 percent. He said that the BoE’s Monetary Policy Committee will consider a “range of options” for guidance.
Carney said that despite the faster than forecast decline in unemployment “the recovery has some way to run before it would be appropriate to consider moving away from the emergency setting of monetary policy”.

Carney also cited low inflation pressures, headwinds such as high government and consumer debt and the threat to exports from the rising pound as motives to keep monetary policy loose.
He said when the target is reached, the MPC will “assess the prevailing economic conditions, including wider measures of slack and inflationary pressures, before deciding the appropriate stance for monetary policy”.

Carney said yesterday that there’s “no immediate need” to increase rates. He added “that it’s really about overall conditions in the labour market, overall amount of slack in companies”, referring to the latest employment data.
Also in Davos, Prime Minister David Cameron today pledged to bring back jobs to Britain by luring companies with business-friendly regulation and lower energy prices.

He said: “Here is now an opportunity for some of those jobs to come back.” He believes that shorter supply chains and rising emerging-market costs, which have already triggered one in 10 small-and-medium-sized businesses to bring some production back to the UK, “have the ability to be a fresh driver of growth in Europe too”.
In November the seasonally adjusted retail trade index in Italy was unchanged from October. The average of the last three months compared to the previous three months decreased by 0.5 percent. The unadjusted index rose by 0.1 percent from November 2012, according to data from the Italian statistics arm today.
The Spanish Producer Price Index grew by 0.6 percent in December from a year earlier, according to a report from the country’s National Institute for Statistics today.
Also today, The British Banker’s Association reported that Mortgage Approvals were 46,500 in December – a rise from the prior 45,400.
The EUR/GBP is currently trading at 0.8293, after moments ago reaching its highest level since 17 January, at 0.8299. The psychological level of 0.8300 may provide strong resistance.
Resistances today: 0.8260, 0.8280 and 0.8300.
Supports: 0.8240, 0.8220 and 0.8200.


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