GBPUSD slipped to week lows after Bank of England governor Mark Carney laid on a thick layer of dovishness at the Mansion House breakfast event. Quite why anyone was surprised is unclear but the market reacted.

Cable fell through the $1.27 handle to touch on $1.267 with investors seeing the tone as indicative of the Bank’s desire to leave rates on hold for as long as it can. The FTSE 100 jumped at the same time, rallying around 30 points as heavyweight dollar earners like HSBC and Shell turned higher.

Carney’s warning that ‘now is not the time’ to tighten should hardly be a surprise, given his record of favouring looser monetary policy, but it does reiterate the MPC’s preference for looking through the current high levels of inflation for the time being.

But as previously noted and evidenced by the 5-3 split last week, the Bank has shifted closer to a hike and should inflation accelerate over the summer the MPC, notwithstanding Mr Carney’s preferences, could be minded to nudge the base rate up 25 basis points. There are plenty who think that the Bank’s decision to cut last summer following the Brexit vote was folly and rising inflation offers a chance to correct that ‘error’.

However the departure of arch-hawk Kristin Forbes leaves those calling for tightening in a greater minority than before. All this matters less for sterling than Brexit negotiations, leaving GBPUSD increasingly range bound until we get a clearer steer on what sort of trading arrangement Britain and the EU is to strike. That could be a long time coming.

Neil Wilson, ETX Capital

Error, group does not exist! Check your syntax! (ID: 3)