Sterling rose on Thursday after incoming Bank of England governor Mark Carney gave no hints that he favoured immediate looser monetary policy, wrongfooting many investors who had expected him to be more dovish. The euro extended losses against the pound on comments from European Central Bank chief Mario Draghi, who warned of risks to the euro zone growth outlook and said the exchange rate was important for growth and stability.
Sterling rose 0.3 percent against the dollar to $1.5709, having earlier jumped to a session high of $1.5768, as investors who had bet that Carney would hint at more aggressive easing measures covered their short positions. The single currency fell 1.2 percent to 85.22 pence, its lowest since January 25.
"The markets seem to have been expecting a more dovish tone from Carney given there was a very sharp spike in sterling. Carney has just played it down the middle and was very balanced, avoiding forming any preconceptions about what he is going to do," said Raghav Subbarao, currency strategist at Barclays.
Strategists said Carney, who takes the helm in July, appeared to be in favour of maintaining the BoE's existing mandate of targeting inflation rather than growth, based on his comments to a committee of UK lawmakers. "The real doves have been disappointed because if they are going to stick with inflation targeting that implicitly means the bank is not going to be as dovish as if they changed to nominal GDP targeting," said Jane Foley, senior currency strategist at Rabobank.
While Carney addressed the UK lawmakers, the Bank of England said it was keeping interest rates on hold at 0.5 percent and the quantitative easing total unchanged at 375 billion pounds. In an accompanying statement the BoE said risks to the UK recovery were weighted to the downside, which pushed sterling slightly lower, although it remained within the day's ranges.
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