The pound lost almost two cents against the dollar during trading today as comments from Bank of England (BoE) governor Mark Carney sparked a huge sterling sell off. When trade opened this morning GBP/USD exchange rates were sitting at a two and half year high of $1.6664 but following the comments from Mr Carney sterling plummeted to leave the cross sitting at $1.6483 at the time of writing.
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So what did Mr Carney say and why?
Since March last year sterling has gained around 12.5% against the dollar and most of the gains can be put down to the upturn in the UK economy. The revival has lead to the pound rising against all of the major currencies and this is one off the issues for the central bank.
With GBP/EUR reaching its highest level for over 12 months Mark Carney has deemed it necessary to dampen the pounds recent surge. The UKs largest trade partner is the Eurozone and the BoE do not want UK exports to be affected by the rising cost of the pound. By saying that sterling's strength could harm the UK recovery Mr Carney has pledged to keep interest rates on hold to help improve economic conditions.
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Today's move all but wipes out the gains we witnessed on Wednesday following the UK unemployment figures and means we have seen a 1.5% swing in GBP/USD exchange rates this week.
Today has also shown how quickly things can change in the FX market, sterling seemed to be on the march this week and with the UK economy continuing to over perform most people would have thought rates would continue to rise.
Maybe the BoE were of the same opinion and were concerned sterling will continue to out perform its major counterparts. They have used the only tool available to them at the moment and that is to try and talk down the pound.
I think the pound has the ability to fight of the comments from Mr Carney today, especially if UK data figures continue to beat expectations. If that is the case though it won't be long until the BoE again come out to try and limit the currencies performance.
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