A chap in Brighton has been going round shops and other businesses asking if he can borrow their vacuum cleaners because, he says, his own has broken. Having “borrowed” the machine he disappears and neither he nor the hoover was ever seen again. Since the thief began his campaign three months ago he has cleaned up and people at 16 businesses have been sucked in.
Sterling suffered a very different fate yesterday when it was spat out by investors as Bank of England Governor Sir Mervyn King delivered his penultimate quarterly Inflation Report. None of what he said should have come as a surprise to the market: Persistently above-target inflation, wages failing to keep pace with prices, painfully slow economic growth, the limits to a central bank’s ability to counteract non-market influences such as university tuition fees; these do not constitute news and everybody knows the UK economy faces “big challenges”.
But when the story was told by a po-faced governor investors were left in no doubt as to their responsibility and they dutifully sold the pound. It moved sharply lower across the board, dropping more than a cent against the US dollar and the euro even before Sir Mervyn had finished speaking. On the day sterling is down by 1% or thereabouts against the yen, the US, Canadian and Australian dollars, the euro and the Swiss franc.
And the declines are all the handiwork of the governor. In many ways it is a shame, as the world is drawn inexorably towards a global currency war, that Britain will soon be losing the services of the greatest currency-depressor of his generation.
Sterling was not the only story on Wednesday but it was by far the most high-profile one. Nobody outside Scandinavia really noticed when the Swedish krona hit a 21-year high against the pound and a record high against the US dollar. It jumped after the Rikbank left its benchmark interest rate unchanged at 1% and Governor Stefan Ingves said of his currency’s high value: “We’re happy with the level we’re seeing now. It’s a level that I think will last.”
The SEK was the best performer over the 24 hours, strengthening by 2% against sterling, but the New Zealand dollar was not far behind. The Kiwi got a leg up from the Business NZ purchasing managers’ index, which rose by five points to 55.2.
As Thursday dawned in Europe the pound appeared to be in relatively better shape, at least against the euro in currency exchange. Japan set the tone, reporting a provisional -0.1% contraction in gross domestic product (GDP) during the fourth quarter of 2012. France went one better, with a -0.3% contraction, and Germany outdid both of them as its economy shrank by -0.6%. All three were worse than expected and next to the two European figures Britain’s -0.3% contraction does not look so bad. Later this morning the data from Italy, Portugal and pan-Euroland are all forecast to be negative too.
There is little else on the agenda though. Greece’s unemployment rate will be uncomfortably above a quarter and weekly US jobless claims are unlikely to make any difference to the dollar. New Zealand retail sales for Q4 come out tonight.
Sterling’s best hope today is that further disappointing Euroland GDP figures will relieve the downward pressure on GBP/EUR. If not, investors might still be in a selling mood and not in a mood to send money online.