Bank of England Governor Mark Carney is playing a dangerous game as he tries to manage market expectations of rate hikes. He tried to back away from his comment that rates rises were coming sooner than markets expect by saying MPC guidance is on a medium term path of rates not the timing of first rate rise and that his early interest rate rise comments were intended to make markets more aware of risks.
The market barely noticed the comments after the huge upside surprise in UK inflation sent the pound more than a cent higher.
Things are considerably quieter in Canada as Poloz waits for signs of a pickup in exports and investment before he starts talking about rate hikes.
GBP/CAD went on a major run from 2013 through February but has flattened out since. A minor downtrend since March broke today with GBP/CAD climbing nearly 150 pips. GBP/USD touched a long-term high and GBP/CAD could do the same if Poloz takes a dovish stance.
The thing is, it’s hard to envision how Poloz could be particularly dovish or work to knock down CAD. After last week’s jobs report expectations of a hawkish turn are low but I find it hard to imagine he will be dovish in the face of rising house prices.
GBPCAD could be heading back higher but it needs some help
