King speaks, sterling falls - further update
Simon Ward
Post a Comment
While the primary cause appears to be relatively loose UK monetary conditions, sterling's recent slide was given an additional fillip last week by comments by Bank of England Governor Mervyn King again welcoming a weaker pound. This extends a previously-documented pattern of the Governor's public utterances coinciding with currency depreciation.
Since August 2008, Mr King has presented at five Inflation Report press conferences and given four set-piece speeches. A strategy of shorting the effective index at the close before each appearance and covering the position 24 hours later would have been profitable on all nine occasions. Assuming no gearing, the strategy would have returned a cumulative 11.9% over nine trading days – an annualised gain of more than 2000%.
The benefits of sterling depreciation were questioned in a post last December, which suggested that the inflation cost would be greater than assumed by the MPC and the consensus; this appears to have been borne out by disappointing CPI outturns this year. Official remarks are unlikely to have any lasting effect on currency movements but it is nonetheless surprising that Mr King continues to sing the praises of a slumping pound.
View Printer Friendly Version
Email Article to Friend
Reader Comments