The British Pound tumbled more than 1 per cent on Tuesday, October 25, ahead of testimony from Mark Carney, the Bank of England governor, only to recoup most of those losses as Britain’s senior central banker began speaking, Financial Times reports.
Having held its ground against the dollar for much of the morning, sterling fell sharply in the hours before Mr Carney began giving testimony on the state of the UK economy to the House of Lords economics affair committee.
At its weakest, sterling dropped 1.3 per cent to $1.2083. However, by Tuesday’s close in London, the pound had recovered from its lows to trade 0.5 per cent weaker at $1.2182.
The pound’s volatile day came against the backdrop of a recent rally in the US dollar, which has gained momentum on expectations the Federal Reserve will raise interest rates again in December while monetary authorities in the Europe, Japan and the UK potentially add further stimulus to their economies.
The nervousness in currency markets over the pound was writ large earlier this month when it tumbled more than six per cent in a matter of minutes in early Asian trading on October 7. While the size of Tuesday’s fall and subsequent recovery is more typical of the sorts of moves in FX markets, it underlines investors’ anxiety.
Signs that the UK government is prepared to pursue a “hard Brexit”, which puts controlling migration above maintaining some access to the European single market, has triggered renewed selling of the currency this month. The pain for the pound has been amplified by suggestions from the BoE that it would be prepared to stomach a small overshoot in its inflation target, opening the door to further monetary easing.
Against this febrile backdrop, currency strategists said that Mr Carney’s comments to the committee proved supportive for sterling. There are limits, the governor said, to the bank’s willingness to overshoot the inflation target and that officials were not “indifferent to the exchange rate”.
“The comments were more helpful than people had expected,” said Shahab Jalinoos, a foreign-exchange analyst at Credit Suisse. “Think about it, if Carney had said they were indifferent.”
Since Britain voted for Brexit in late June, sterling has taken most of the strain as investors struggle to get a grip on the implications for the economy in both the short and long term. The currency has fallen by almost a fifth against the dollar since the referendum on June 23.
In October, the pound has fallen about 6 per cent against the dollar. Asked about the recent depreciation, Mr Carney said it reflected changing market perceptions of the UK’s potential future relationship with the EU following statements made by the prime minister and other senior government figures at the Conservative party conference earlier this month.
