Currency Watch: Mervyn cuts a sombre figure

15th November, 2012 by Jeremy Cook

There are few things that we can say with confidence when it comes to FX markets, especially when trying to anticipate market movements.

Mervyn KingHowever, one that we can more readily predict, is that every time Mervyn King takes to the stand, GBP dies a little inside and this week was no different.

GBP dropped as he entered the room to deliver his views on the path ahead for the UK’s economy, perhaps the markets didn’t care for his choice of tie.

Having watched the press conference, one thing I did notice was the choice of language used to describe the UK’s outlook. The use of words like “sustained”, “persistent”, “subdued”, were all used in reference to low and negative growth.

While in the past we have had to listen to politicians and economists throw in their two cents as to the state of the economy, there was a real sense of prolonged pain and deterioration in King’s words.

He stood behind the validity and effectiveness of the QE programme, confirming that it was still his weapon of choice to combat the threat of recession. He was clear to point out that the success of QE was down to timing and not quantity. The appreciation of the pound and an “unfavourable external environment” – in the Eurozone in particular, were the main culprits for causing the UK difficulties.

In a nutshell – the future looks grim and the UK isn’t going to be pulling itself out of this hole anytime soon, with a Q4 contraction now likely. GBP/USD and GBP/EUR dropped to a new 11 week and three week low respectively following this appraisal.

Minutes from the last Fed meeting were also released this week, which highlighted the plans to support its QE programme by extending Operation Twist.

As expected the Fed and its monetary tool belt will take a back seat while the ‘fiscal cliff’ is tackled by the government. Obama gave a speech yesterday stating that the government was making good progress in undertaking policy changes.

US retail sales were slightly worse than expected for October due to Hurricane Sandy, but this isn’t the big issue which people are thinking about across the pond. If the US politicians can’t find a way to resolve the problems of the “fiscal cliff” it won’t just be a bad thing for the Americans.

King might find himself expressing an even more sombre tone if the US doesn’t avoid falling over the edge.

John Daly is an economist at World First foreign exchange.

Leave a Reply

Your email address will not be published. Required fields are marked *

Please note that comments are subject to our posting guidelines in accordance with the Defamation Act 2013. Posts containing swear words, discrimination, offensive language and libellous or defamatory comments will not be approved.

Subscribe to our newsletters

Job vacancies

Sales Account Manager

Jascots Wine Merchants
London, UK

Marylebone Sales Manager

Philglas & Swiggot
Marylebone, London, UK

Area Sales Manager

Bon Coeur Fine Wines
North England, UK

Procurement Assistant – Wine

Adnams PLC
Southwold, UK

Account Manager Central London

Speciality Drinks Ltd
London, UK

Brand Ambassador

Speciality Drinks Ltd
London, UK

National Business Development Manager

Speciality Drinks Ltd
London, UK

Marketing Assistant

Hatch Mansfield
Ascot, Berkshire, UK

Marketing Manager

Bancroft Wines
London, UK

Regional Sales Manager – Scotland

Bancroft Wines
London, UK

Sales Manager – London On-Trade

Bancroft Wines
London, UK

Customer Service & Sales Support Executive

Jascots Wine Merchants
London, UK

Market Insight Analyst

Conviviality PLC
London, UK

Technical Manager

Enotria&Coe
Park Royal, London, GB

The Global Sparkling Masters 2017

Deadline : 25th August 2017

The Global Malbec Masters 2017

Deadline : 25th August 2017

Global Chardonnay Masters 2017

Deadline : 1st September 2017

The Global Sauvignon Blanc Masters 2017

Deadline : 1st September 2017

Click to view more

The Global Rosé Masters 2017

With wines from the palest of pink to almost ruby red, bone dry to almost cloyingly sweet, reductively handled to barrel-aged, as well as gently spritzy to fully sparkling.

The Global Organic Masters 2017

The drinks business is thrilled to announce the launch of The Global Organic Masters

The Drinks Business Awards 2017

Now in its 15th year, the db awards have become the most authoritative, internationally respected badge of achievement in the alcoholic drinks industry.

The Asian Cabernet Sauvignon Masters 2017

the drinks business Hong Kong announces its first year of The Asian Cabernet Sauvignon Masters.

Click to view more