The pound and the euro are surging as Carney and Draghi appear hawkish

LONDON — The pound and the euro are rallying on Thursday morning after hawkish comments from both Bank of England Governor Mark Carney and ECB President Mario Draghi in the last couple of days.

Draghi hinted on Tuesday that he may be open to the removal of some of the bank’s unprecedented monetary stimulus, which has taken the form of negative interest rates and €60 billion of quantitative easing. That sparked a flurry of buying into the single currency, which jumped to a near 10-month high after the comments.

It extended those gains on Wednesday and has continued to do so on Thursday morning, despite ECB sources telling both Reuters and Bloomberg that the market has misinterpreted Draghi’s comments and overreacted to them.

Regardless, the euro is up 0.45% as of 8.30 a.m. BST (3.30 a.m. ET) to trade at €1.1429 against the dollar:

It is a similar story in the UK, with the pound rallying strongly after comments by Carney that were seen as hawkish.

“Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional,” Britain’s most senior monetary policymaker said while speaking on a panel at the European Central Bank’s Forum on Central Banking in Sintra, Portugal.

As recently as last week, Carney said that he was not ready to vote for a rate hike. He is one of the more dovish members of the bank’s Monetary Policy Committee. But on Wednesday he sought to clarify his position, effectively saying that he would be ready to vote for a rise in rates if business investment begins to rise, which should offset weaker consumption in the process.

Those comments pushed sterling more than 1% higher on Wednesday afternoon, with gains continuing into Thursday morning. The pound is close to 0.5% higher against the dollar, and is close to breaking above the $US1.30 mark for the first time since mid-May.

Here is the chart:

Hussein Sayed, chief market strategist at FXTM, said in an emailed statement: “Both the ECB’s Mario Draghi and the BoE’s Mark Carney have now sent a message to investors from Sintra, Portugal, that the era of cheap money is close to an end. This time, the reaction was mainly felt in fixed income and currency markets.”

See the latest EUR-USD movements here.

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