Saturday, February 16, 2008
Posted by David Smith at 11:00 AM
Category: Thoughts and responses

A curious Lex column in the Financial Times this morning, which says the following, under the headling Pounded:

"Sometimes currencies do what they’re supposed to. Last year analysts were at odds as to why the British pound was so strong (the lazier explanations included the lure of London and that the country speaks English). But by the year end they were virtually unanimous that sterling would fall – and so it has. Compared with the highest exchange rates recorded last year, the pound is down 15 per cent against the yen and the euro. Versus the dollar, which itself is in a tail-spin, sterling has lost 7 per cent of its value."

In fact, forecasters who by the year end were unanimous in predicting that sterling would fall were behind the game - it already had, though from a position where a year ago it was at its highest level since the early 1980s. The story of the first few weeks of this year has been one of sterling stability. The sterling index is roughly where it was at the start of the year and the Bank's broader trade-weighted index is up. Sterling may well fall this year. It hasn't yet.