The euro dipped and government bond yields across the single-currency bloc gave up earlier rises on Wednesday after euro zone central bank sources told Reuters the market had overinterpreted comments from ECB chief Mario Draghi. And as David Pollard reports, sterling spiked on new signs of hawkishness from Bank of England governor, Mark Carney.
Someone got it wrong ... The question is: Mario Draghi - or the markets? Traders pushed the euro to its biggest one-day gain in a year after what they thought was a clear hint of ECB tightening to come. But have now been sharply selling it again - on follow-up comments from central bank sources. Markets had overinterpreted the ECB chief, they said. Reversing not only the single currency, but expectations. (SOUNDBITE) (ENGLISH) NEIL WILSON, SENIOR MARKET ANALYST, ETX CAPITAL, SAYING: "With underlying inflation remaining very subdued versus headline growth rates, then the European Central Bank is not going to be prepared to undo the QE and ultra loose policy that it's pursuing at the moment." But that wasn't the only surprise during this week's central bank conference in Portugal. (SOUNDBITE) (ENGLISH) BANK OF ENGLAND GOVERNOR, MARK CARNEY, SAYING: "Any overshoot of inflation of above target can only be temporary in nature and limited in scope, and therefore we have been clear that we have limited tolerance for that above-target inflation." Sterling surged to a three-week high while UK stocks fell ... As the BOE chief went on to say the MPC would debate 'issues' around raising rates in the 'coming months'. That, too, appearing to overturn thoughts of a split between Carney - and some more hawkish policymakers. As they wrestle with their central dilemma: just how temporary is the UK's near three per cent inflation rate? (SOUNDBITE) (ENGLISH) NEIL WILSON, SENIOR MARKET ANALYST, ETX CAPITAL, SAYING: "If it is just the pound that's driving it, which it seems to be, then that should pass through and we can overlook it. But if that continues to persist and eat into wages and start to really dampen consumer spending, consumer sentiment and that, then that is a bigger problem." On Tuesday, it was Fed chair, Janet Yellen's turn. US rates were likely to rise only 'very gradually', she said. Markets barely budging in response - in a possible sign that her guidance at least - has been getting it right