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FTSE loses ground on Carney’s forward guidance

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The FTSE 100 closed 1.4% down on Wednesday after new Bank of England Governor Mark Carney gave the market forward guidance, but sterling recovered after an initial drop.
FTSE loses ground on Carney’s forward guidance

On Wednesday, Carney reiterated the Bank would not start tapering its £375bn quantitative easing programme and interest rates would remain at record lows until unemployment dropped to 7%.

Currently, unemployment is at 7.8% and Carney does not expect the lower target to be reached for another three years.

However, the statement failed to impress investors and the equity market slumped on fears of monetary tightening, with Britain’s blue-chip index shedding 1.4% to 6,511.

However, sterling rebounded to trade at $1.55 by the end of the day, after falling 0.9% immediately after the statement, as currency traders began to price in inflationary pressures resulting from improving growth.

Meanwhile, gilt prices fell, sending yields higher to 2.48%, as the statement convinced investors the Bank would stop buying gilts at the same rate as it has been so far.

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