Mark Carney may well reflect on the vagaries of forecasting as he prepares to deliver his annual Mansion House speech to financiers in London on Wednesday. A year after the Bank of England governor sparked speculation that U.K. interest rates could increase within months, money markets are projecting officials will maintain the cost of borrowing at a record low until the summer of 2016. At the Mansion House dinner last year, Carney told households and businesses to prepare for a rate increase “sooner than markets currently expect,” prompting investors to shift bets on a move to February 2015 from May. Since then, inflation has evaporated and the economy is struggling to rebound from its weakest quarterly performance since 2012. “This time around I am not all that certain he wants to inject any more volatility into the market,” said Peter Kinsella, a senior currency strategist at Commerzbank AG in London. Investors are only fully pricing a quarter-point rate increase from the current 0.5 percent by July 2016, according to Sonia fixings data provided by ICAP Plc. That’s five months later than projected earlier this year. The pound remained lower against the dollar on Tuesday after data showed that the U.K. trade deficit fell to the lowest in more than a year in April, indicating that it may create less of a drag on growth in the current quarter. The Office for National Statistics said the trade deficit narrowed to £1.2 billion in April, the lowest since March 2014 from an upwardly revised £3.1 billion the previous month. The goods trade deficit narrowed to £8.5 billion from £10.7 billion, also the lowest since March last year. The U.K.’s trade deficit trimmed 0.9% off overall economic growth in the first quarter, and the economy expanded just 0.3%. The report showed that exports rose 4.8% in April, the largest increase since September 2014. The pound remained under pressure as concerns over the prospect of a possible British exit from the European Union weighed ahead of a referendum on EU membership due to be held before the end of 2017. However, GBPUSD traded higher this morning, hitting 1.5460 ahead of manufacturing production and industrial production. Nevertheless both of the figures are expected to be lower than previous according to market analysts.
Greece retreated from budget concessions to its creditors, setting the stage for another attempt by German Chancellor Angela Merkel and French President Francois Hollande to break the country’s financing deadlock. With Greece’s financial safety net expiring on June 30, Prime Minister Alexis Tsipras plans to meet the leaders of the euro area’s two biggest economies in Brussels today. Any remaining bailout funds are off limits unless Tsipras reaches an accord with creditors. The three-way meeting, which may take place after the first day of a summit of leaders of European Union and Latin American countries, signals the urgency in keeping Europe’s most-indebted country solvent. All the more so because talks this week have failed to make progress, according to an official directly involved in the process. EUR/USD inched down 0.0011 or 0.10% yesterday to close at 1.1280. In spite of today’s minor downturn, the pair has still remained above 1.10 for the last seven sessions. EUR/USD traded in a tight range of 1.1214 and 1.1344, ahead of today’s key meeting between Greece prime minister Alexis Tsipras and Germany chancellor Angela Merkel in Brussels. The pair likely gained support at 1.1048, the low on June 4 and was met with resistance at 1.1381, the high on June 5.
The dollar dropped to two-week lows against the yen this morning after comments by Bank of Japan Governor Haruhiko Kuroda suggested that the yen may not decline further against the greenback. USD/JPY fell 1.21% to 122.49, the weakest since May 26 and was last at 122.84, well below the 13-year peaks of 125.84 struck last Friday. The yen rallied after Kuroda said the real effective exchange rate shows the Japanese currency is “very weak”. The real effective exchange rate measures the yen’s levels relative to the currencies of Japan’s trading partners. Kuroda also said the dollar may not necessarily rise further against the yen if the Federal Reserve raises interest rates as it is already priced into the market. The comments came as Kuroda addressed parliament’s financial affairs committee. The dollar rose to 13-year peaks against the yen on Friday after an above forecast U.S. jobs report underlined expectations that the Fed could start to raise rates at its September meeting. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.39% to 94.80, pressured lower by the stronger yen.