What Did Sterling React To?
Governor Carney’s first inflation report left plenty for investors to digest, but perhaps the reaction in FX markets was the most perplexing for participants. Extreme positioning changes played a role, but with regard to fundamentals, markets (and the Bank of England itself for that matter) should not jump to conclusions: sterling’s ultimate rise may have been ‘counter-intuitive’, but intuition itself is pre-governed by the individual subject sterling is expected to react to. In the space of just over two hours, this subject was likely not constant.
Read the full report: UBS