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Mini-recovery for sterling as Carney says Brexit reaction 'may be mistaken'

Published 25/10/2016

Mark Carney says the market may misinterpret Britain's economic prospects as it disentangles itself from the EU
Mark Carney says the market may misinterpret Britain's economic prospects as it disentangles itself from the EU

Sterling has staged a mini-recovery after the Bank of England governor suggested that market reaction to Brexit could be "mistaken".

Mark Carney said that while the pound was "going to move around" throughout the Brexit process, the market may misinterpret Britain's economic prospects as it disentangles itself from the EU.

He said that the slide in the pound over the past few weeks has largely been driven by "market perception of fundamental factors" and "what the potential relationship will be between the UK and Europe".

"The initial market perception of where the supply potential of this economy will be in the immediate aftermath (of Brexit), that perception may well be mistaken," Mr Carney said during his appearance in front of the House of Lords Economic Affairs Committee on Tuesday.

His comments helped the pound recover losses, after falling as much as 1% to 1.20 against the US dollar. Sterling was trading lower by 0.46% at around 1.216 dollars as Mr Carney continued his testimony.

He also said the exchange rate has been most drastically affected by government announcements, rather than the Bank's monetary policy, adding that sterling barely moved after the Bank delivered a bumper stimulus package that included cutting interest rates to record lows of 0.25% in August.

Mr Carney said sterling really started to move after it became clear when Article 50 would be triggered, and after the Conservative Party conference.

He went on to reiterate that while the Bank does not have an exchange rate target, it was "not indifferent" to sterling moves.

The pound has fallen nearly 20% against the US dollar since the Brexit vote.

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