Sterling Weakens as Carney Warns of Additional Stimulus

The British Pound retreated after early session strength after Bank of England governor Mark Carney warned Thursday that further stimulus measures may soon be needed for the U.K. following the country’s vote to leave the European Union. After reaching an intraday high at 1.3495, the GBP/USD retreated to 1.3289, down 0.01418 or -1.06%.

In a speech at the Bank of England in London, Carney forecast a “material slowing” in economic growth as a result of last week’s referendum. “The economic outlook has deteriorated and some monetary policy easing will likely be required over the summer,” Carney said.

The central bank’s Monetary Policy Committee is scheduled to make an initial assessment of the situation on July 14, before publishing updated growth and inflation forecasts in its August “Inflation report.”

“In August, we will also discuss further the range of instruments at our disposal,” Carney said, laying the groundwork for possible policy changes.

As recently as May, the BoE forecast the U.K. economy would slow to 2 percent in 2016, partly due to increased uncertainty wrought by run-up to the Brexit referendum.

Carney also said the BoE would extend its indexed long-term repo operations on a weekly basis until the end of September, to help banks manage liquidity amid “heightened uncertainty.”

Finally, in his speech on Thursday, Carney attempted to reassure the market regarding the U.K. financial sector.

“The capital requirements of our largest banks (are) not 10 times higher than before the crisis. Moreover, the bank has stress tested our major banks and building societies against scenarios far more severe than the country currently faces,” he said.

The EUR/USD also fell in concert with the Sterling as short-covering investors changed their strategy. Some may have place fresh bets in favor of a weaker Euro.

A two-sided U.S. Dollar helped hold August Comex Gold futures in a range. However, the market did catch a bid when the Sterling began to weaken, driving it up from a low of $1315.30 to $1324.50, down $2.40 or -0.18%.

August Crude Oil futures also fell about 2 percent, pressured by the rising U.S. Dollar and the return of Nigerian and Canadian output. Investors also used the long U.S. holiday week-end as an excuse to book profits. OPEC’s oil output was also up in June to its highest in recent history, according to Reuters.