Bank of England Governor Sir Mervyn King’s bid to put a floor under the pound’s alarming plunge put the currency on the comeback trail today, but experts warned the pressure on sterling would soon resume.
The pound has sunk 9% against the dollar so far this year, to 33-month lows of $1.4832. King’s comments that sterling was now “properly valued” sent traders scurrying back into the currency, pushing it as high as $1.5145 in trading this morning.
His intervention comes as a recovering US economy, relative eurozone calm and growing support for more money-printing on the Bank’s Monetary Policy Committee prompts doubts over the pound among investors. The Governor, who said rate-setters “were certainly not trying to push sterling down”, is one of three members who urged more quantitative easing last month.
Chris Scicluna, head of economic research at Daiwa Capital Markets Europe, said: “Given expectations of further easing to come it is more likely than not the pound will be going back to where it was three years ago.”CMC Markets analyst Michael Hewson said: “The last thing King wants to do is talk the pound down and create an inflation bubble. If he really believes what he’s saying about the pound the minutes of the March meeting next week will show him dropping his vote for more QE.”
Hewson said the pound could sink as low as $1.24 by 2015 as US recovery, worsening UK debt and a potential Labour government drag it lower.
