Sterling Pounded – 18th July 2016

Sterling Pounded

After a great day on Thursday, following the Bank of England’s failure to deliver the expected interest rate cut, Sterling had a troublesome day on Friday. Profit-taking was part of the problem but Sterling’s decline was mainly the result of a speech by Bank of England’s Chief Economist Andrew Haldane.

In it Mr Haldane said “a material easing of monetary policy is likely to be needed” and that it should be “delivered promptly as well as muscularly. By promptly I mean next month.” Curiously, the bank left it until Friday to publish this and even stranger, Mr Haldane didn’t even vote for an interest rate cut at last Thursday’s MPC meeting.

If it was Mr Haldane’s intention to ease policy through a lower Sterling he was successful; compared with Friday morning Sterling is lower across the board, down by an average of nearly 1%. It’s losses include one Euro cent, one and a third Swiss cents and nearly two US cents. The safe-haven Yen took the top slot, courtesy of the Ankara coup (see below) with the US Dollar close behind, helped by Friday’s strong US retail sales data.

As news broke of the military coup in Turkey, US investors marked down the Turkish Lira quite substantially. In less than 60 minutes it fell 5% against the US Dollar before losing momentum as US markets closed for the weekend. By the time the Far East got going this morning it had become clear that President Recep Erdoğan had retained control of the country and the central bank had promised “unlimited liquidity” to commercial banks.

There is something on the agenda for Sterling every day this week. Today’s first item came at midnight with a 0.9% monthly fall in Rightmove’s house price index. The next and more important one will be a speech this morning by MPC member Martin Weale. Mr Weale is the longest-serving member of the MPC, having attended 72 meetings. The Bank Rate was already down at 0.5% when he started and he has voted 12 times for an increase. It is conceivable, then, that Mr Weale’s speech might provide a hawkish counterpoint to Mr Haldane’s dovishness. If not, look out.