Mervyn King’s remarks have boosted pound says currency broker HiFX

15th March 2013

The pound has risen to the highest level for weeks against major currencies apparently due to remarks from Bank of England Governor Mervyn King saying it is now “properly valued” and that the Bank isn’t looking to push Sterling down.

The pound was up around two per cent in morning trading. Analysing the speech, currency broker HiFX spokesman Andy Scott says: “The Governor’s words are in stark contrast to his previous comments on the pound’s value which seemed to endorse a weaker currency in order to boost exports and help with rebalancing the economy. He also commented about bringing inflation back to the two per cent target, an area that the bank has struggled with which can in part be linked to a weaker pound. Having previously voted for an increase in quantitative easing at February’s meeting, this could be a signal that he’s moving back to the majority and not voting for an increase. The minutes for the meeting will be released on Wednesday morning next week.”

Scott believes there may have been some sort of reconciliation between Governor and Chancellor with the former sounding more upbeat about an economic recovery.

“The timing of these comments and the fact that he reiterated his stance of supporting the Government’s efforts to reduce the deficit, with the BoE providing support through monetary policy, leads me to believe that he had a call from the current resident of number 11 Downing Street. Tensions between the Bank and the Treasury have caught the attention of the media recently but his interview with ITV last night should bring an end to that. He was much more upbeat on the outlook for the UK economy than he’s been for some time saying “There is momentum behind the recovery that’s coming”. George Osborne delivers his 2013 budget next week he’s likely to face some harsh questions over his managing of the economy and the seemingly absent recovery so King’s comments will no doubt feature as part of his defence.”

“We still maintain a cautious outlook on Sterling for the near term. Markets tend to listen to central bankers but talk is cheap and memories short. The figures on the economy are what matter and they don’t look great with there still being a risk of a third technical recession in the last four years if we see contraction in the current quarter. There’s also the possibility that the Bank of England will do more quantitative easing which will keep investors wary due to such measures usually having a negative impact on a currency’s value,” he says.

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