Currencies: Sterling’s plunge; markets wake up to Brexit

Posted: January 27, 2016 in economy
Tags: , ,

STERLING has had a very choppy history, marked by crises such as 1967, 1976 and 1992. And it is having another rocky period. John Warith of UBS writes thatOf the many violent recent moves in global markets, the collapse of sterling is one of the most remarkable. In trade weighted terms, the currency has dropped more than 7% in just two months, a fall of a magnitude only surpassed once since the MPC assumed responsibility for setting UK monetary policy in 1997.Part of the weakness is down to a change in tone by Mark Carney, the governor of the Bank of England, who indicated recently that British interest rates were unlikely to rise in the near future. But that can't really explain the whole move; after all, the European central Bank has hinted it will ease policy further, but the pound has still fallen against the euro.

 And though the interest rate rise in December boosted the dollar, markets have been revising down their forecasts for further US rate increases just as rapidly as they have for those in Britain. The pound has behaved more like a commodity currency (the Aussie or Canadian dollars) even though it is a large net importer of commodities.Mr Wraith's answer is simpleWe believe the explanation for the move lies in the future, not the past. A big increase in the focus on the UK's EU referendum – which may well be held by the middle of the year – and a …

via Economic Crisis


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