GBP/USD Tumbles on Carney Comments; Rates Likely to Remain Low

The GBP/USD broke sharply after Bank of England Governor Mark Carney emphasized the U.K. economy hasn’t recovered enough to warrant a rate hike. Carney made the comments in a press conference after the BoE’s quarterly Inflation Report showed little change in forecasts for growth and inflation. The report indicated there is still spare capacity in the economy of about 1% to 1.5% of annual output.

Recent guidance from the BoE focused on the unemployment rate and inflation. Today’s jobs data indicated the U.K. economy added 283,000 new jobs in the three months to March. Unemployment also ticked down to 6.8% during the same period from 6.9%. Today’s comments shifted the guidance to spare capacity which probably means the BoE won’t be raising rates soon.

There was very little movement by the EUR/USD today as prices continued to consolidate inside the major retracement zone at 1.3734 to 1.3673. Short-sellers took a break after a hard four day sell-off. The move was triggered by talk of stimulus from the European Central Bank in June. Traders may be taking a breather before the next round of selling pressure starts. Oversold conditions may have contributed to the sideways action, setting up the market for a potential short-term retracement.

July Crude Oil futures rallied despite a surprise rise in oil stocks. According to the Energy Information Agency, crude oil supply rose by 0.9M barrels the week-ended May 9. Traders were looking for a drawdown of 0.4M. The rally in crude oil suggests speculators are more concerned about a possible disruption in supply because of the crisis in Ukraine than they are about the supply/demand situation in the U.S.

June Comex Gold posted a strong gain on Wednesday. After consolidating on Tuesday, following Monday’s surge, investors picked up where they left off, triggering a rally into a key retracement level at $1307.30. A breakout over this price should mean a test of the last main top at $1315.80. Although demand for gold has been waning because of the greater demand for higher-yielding stocks, the price action suggests that speculators are betting on the crisis in Ukraine to worsen and seeking some protection.

Signs of a weakening global economy also helped drive gold prices higher. Today’s U.K. inflation report probably means the central bank will refrain from hiking interest rates. This news helped underpin gold prices.