The Pound (Sterling)
Sterling showed a signs of a slight recovery yesterday afternoon after a sharp decline following preliminary GDP reports for Quarter 4 on Tuesday morning came in at -0.5% against an anticipated +0.5%. The slight recovery was thanks to minutes from the Bank of England that showed a second member of the Monetary Policy Committee voted for a 0.25% rise in interest rates. The pound lost between 1 and 1.5% against a basket of actively traded currencies yesterday but ended the day clawing back around half of those losses by the close of play. The UK now faces the strong possibility of negative growth and increasingly high inflation leading to stagflation and therefore very little which can further support Sterling.
Sterling started the day at a low not seen since November the 8th against the Euro and a 1 week low against the US$ but ended up over half a percent during intraday trading.
There were fireworks in the House of Commons as PM David Cameron conceded the figures were “disappointing even when you have excluded what the Office for National Statistics say about the extreme weather”. He added: “This country does have a very difficult economic situation for two main reasons. First of all, we have the biggest budget deficit in Europe and we have to get to grips with that and that is difficult. And second, we had the biggest banking boom and the biggest banking bust anywhere in Europe, and we have to deal with that.”
Mervyn King Head of the Bank of England also implied that he is not in favour of a tightening of policy in the near term, favouring the likelihood that inflationary pressures will subside over the medium term.
The Hometrack survey released at midnight showed house prices falling for the seventh consecutive month, standing at 2.2% down from a year earlier.
The Euro had a relatively flat day against most currencies as most eyes were on more volatile pairings linked to GBP. The euro rose very slightly against the US dollar as the European relief fund’s bond climbed in the first day of trading. Pressure remains on the single currency to resolve sovereign debt issues and further talk yesterday of issues in Greece could result in further Euro weakness following a strong spell last week.