Sterling Digest, 6 August 2013: flavors of guidance

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Which flavor of guidance will Carney serve up?

This week, it is all about the Inflation Report released tomorrow. With no statement released after the Bank of England decided not to change monetary policy, the market has been in hot anticipation of this formal forward guidance that Mark Carney will issue for England. The discussion of forward guidance has become fragmented: hard guidance vs. soft guidance; inflation target vs. GDP target. Given the state of the UK economy, it will be interesting to hear what Carney has to say in his 1st inflation report. Even more interesting will the be the market reaction. Yesterday’s strong retail sales caused sterling to rally hard across the board. Today, however, sterling has weakened after strong manufacturing numbers were released. Either the market is running out of steam or it is already looking ahead to tomorrow’s inflation report.

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