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A tale of two central bankers

Hysteria

Mark Carney did not start until shortly before five o'clock but the Bank of England governor's presentation on Wednesday was worth the wait. Warnings that it would contain mild peril totally understated the shock value: one leading Brexiteer even described it as hysterical.  

Mark Carney was setting out the bank's models of how some of the possible Brexit outcomes might affect the UK economy. In every case gross domestic product would be lower outside the EU, as chancellor Philip Hammond conceded yesterday. The direst option would be for Britain to leave the EU with no deal and no transition period, which would knock back gross domestic product by up to 10.5% from its pre-referendum trend.

Investors refused to panic. The least bad version of Brexit (the bank describes it as "close relationship") would cost the country less than 4% of GDP, arguably not much more than a rounding error in an official medium-term forecast. And that is what investors expect: they see minimal chance of no deal.  Sterling was on average unchanged; flat against the euro and the Swiss franc. 

Pedantry

Just a day after his deputy was taken to task for a missing word, the Federal Reserve chairman wheeled out a syntactic adjustment of his own. Instead of interest rates being "a long way from neutral", as they were in October, they are now "just below" the neutral range.

With his observation Jay Powell sucked the media attention away from Mr Carney (who was still on his feet) and forced a re-evaluation of where US interest rates might wind up. The consensus was that Mr Powell's choice of words was not accidental, and that there might be no more than two further rate hikes in the pipeline; one next month and one in the new year.

The dollar lost half a cent in a matter of minutes and weakened further later in the evening before stabilising overnight. It was the weakest among the majors, losing nearly a cent to sterling and the euro. 

FOMC minutes

In light of Mr Powell's observation, investors will be keen to see the minutes of the last Federal Open Market Committee meeting, which come out this evening. Rafts of economic data today and tomorrow include no truly market-sensitive statistics.

Today's highlights are UK mortgage approvals, German inflation, euro zone confidence and US personal income and spending. Swiss gross domestic product, already announced, unexpectedly shrank by 0.2% in the third quarter.  

Japanese inflation, unemployment, consumer confidence and industrial production figures come out tonight alongside GfK's index of UK consumer confidence. China will release two manufacturing purchasing managers' indices. As well as the pan-Euroland figures for unemployment and inflation, there will be national measures of German retail sales and Italian GDP.  North American data tomorrow will cover Canadian GDP and the Chicago purchasing managers' index. The G20 summit meeting could result in a meeting of the minds between Washington and Beijing but investors are not holding their breath.

GBP unchanged after Brexit horror stories

GBP unchanged after Brexit horror stories

EUR steady against sterling and franc

EUR steady against sterling and franc

USD falls after Fed chief dials down hawkish tone

USD falls after Fed chief dials down hawkish tone

CHF survives unexpected Q3 shrinkage

CHF survives unexpected Q3 shrinkage

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