This Great Graphic, composed on Bloomberg, shows the price action of the March 15 Short-Sterling futures contract (white line) and the March 15 Eurodollar futures contract (yellow line).
The head of the both central banks have spoken over the past 24 hours. Both said that rates will remain low for longer, even though the unemployment thresholds are being approached.
This chart shows prices (to convert to yields subtract the price from 100). These yields in both countries trended lower(prices higher) since the start of the year. The implied yield of the Eurodollar futures remains near the low point (prices near the highs). However, the yield on the short-sterling futures jumped today as the market was not taken in by Carney's dovishness.
The Bank of England is being punished twice: once through higher interest rates and once through the currency. Sterling's gains against both the euro and dollar hint at the appreciation on a trade-weighted basis, which is more important than nominal bilateral rates in terms of economic impact. On the BOE's broad trade-weighted measure, sterling has appreciated by about 7.7%. This is tantamount roughly 125 bp of tightening.
Ironically, Carney replaced King at the head of the BOE largely because he offered a more activist approach to support the government's fiscal efforts (leave aside the fact that King want to expand gilt purchases, but repeatedly failed to convince a majority on the MPC). Now it turns out that the market no longer thinks such a dovish posture is justified. Carney may have to reinvent himself.
The head of the both central banks have spoken over the past 24 hours. Both said that rates will remain low for longer, even though the unemployment thresholds are being approached.
This chart shows prices (to convert to yields subtract the price from 100). These yields in both countries trended lower(prices higher) since the start of the year. The implied yield of the Eurodollar futures remains near the low point (prices near the highs). However, the yield on the short-sterling futures jumped today as the market was not taken in by Carney's dovishness.
The Bank of England is being punished twice: once through higher interest rates and once through the currency. Sterling's gains against both the euro and dollar hint at the appreciation on a trade-weighted basis, which is more important than nominal bilateral rates in terms of economic impact. On the BOE's broad trade-weighted measure, sterling has appreciated by about 7.7%. This is tantamount roughly 125 bp of tightening.
Ironically, Carney replaced King at the head of the BOE largely because he offered a more activist approach to support the government's fiscal efforts (leave aside the fact that King want to expand gilt purchases, but repeatedly failed to convince a majority on the MPC). Now it turns out that the market no longer thinks such a dovish posture is justified. Carney may have to reinvent himself.
Great Graphic: Yellen more Credible than Carney
Reviewed by Marc Chandler
on
February 12, 2014
Rating:
Reviewed by Marc Chandler
on
February 12, 2014
Rating:
