Sterling’s Talisman again is Mark Carney – 25th May 2016

Sterling’s Talisman again is Mark Carney

Sterling started to move higher almost as soon as London opened yesterday and extended its lead as the morning progressed. It hesitated only slightly when the UK public sector borrowing data for April confirmed that the Chancellor’s deficit reduction efforts had again missed their target, but overall, Sterling was up by an average of 0.8%. It strengthened by exactly that much – a cent and a quarter – against the US Dollar and added one and a half Swiss cents and nearly two Euro cents.

Sterling’s talisman, for the second time this month, was Bank of England governor Mark Carney. His commentary to parliament’s Treasury Committee yesterday was in line with what he said two weeks ago when he introduced the Inflation Report: “a vote to leave the EU could have material economic effects – on the exchange rate, on demand and on the economy’s supply potential”. Investors saw his comments as supportive of the “Stay” campaign which in turn supported Sterling.

These days a rising oil price is taken to be positive for the global economy and yesterday it rose by 3% on the day to touch a seven-month high. Equity markets therefore rose around the world leading to the commodity currencies doing reasonably well. The South African Rand was closest behind Sterling, with the NZ Dollar and Canadian Dollar not too far behind. Bringing up the rear were the safe-haven Yen and Euro, both of which were down by -1.5% against Sterling.

In other news yesterday, Brussels reached an agreement to pay the next tranche of bailout money to Greece and the sound of cans being kicked further down the road echoed around the city. The most important event today is the Bank of Canada’s policy announcement at 3pm with any change to the bank’s 0.5% target rate would coming as a shock.