The pound dives after Carney pours water on the prospect of a rate hike

Sterling dropped to a one week low on Tuesday morning after Governor of the Bank of England Mark Carney said that interests rates should not be raised any time soon.

Carney said borrowing costs should not go up before there is a clear picture of how the Brexit talks will play out during a speech made at London’s Mansion House.

The pound dropped 0.44% to $US1.2682, a one week low, as of 09:25 a.m. BST (04:02 EST).

“Given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment,” said Carney.

“In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations,” he said.

Carney’s comments come after three members of the Bank’s Monetary Policy Committee last week voted to increase rates, shocking investors who had expected just one member, the outgoing Kristin Forbes, to back tightening policy.

The Chancellor, Philip Hammond, spoke alongside Carney, noting that Brexit negotiations should include a transitionary period in which the UK will be outside the customs union but will still abide by customs union rules.

The speeches weree originally scheduled for last Thursday, but the City of London corporation cancelled the event following the Grenfell Tower disaster.

“Investors today will focus on what BoE’s Mark Carney has to say after three MPC policymakers voted to raise interest rates last week, ” said Hussein Sayed, chief strategist at FXTM. “Rising prices and falling wages is one of the biggest challenges a central bank can face, and investors need more clarity on what tools are available to tackle these problems,” he said.

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