Posted by: Jaime Steele in Blog on Sep 28, 2009
The story in markets last week was all about the weakness of Sterling. The pound fell to a five month low against the Euro, confounding many who had expected Sterling to appreciate against the single currency by the end of the summer.
Significant falls against the US Dollar were also recorded, but certainly the movements against the Euro are what are making the headlines. This can be attributed mainly to remarks made by the Bank of England governor Mervyn King.
Mr King in an interview stated that the fall in Sterling was “helpful” in rebalancing the UK focus on exports. His view was that as the weaker pound would facilitate exports, it would also discourage imports, and, as such help rebalance the UK trade deficit whilst providing stimulus to the UK manufacturing sector.
It is difficult to argue with his logic in that respect, and upon hearing this foreign exchange markets took it to be a green light signal to sell the pound. After all if the Central Bank Governor is supportive of a weaker currency, then whilst not policy, it could almost be construed as a desire.
In any event Sterling fell sharply and remains weak on the opening this morning. We have a varied selection of economic data out this week so it will be interesting to see if the trend continues. Euro sellers should be happier anyway.