Sterling falls across the board as Mervyn King makes speech

London - 23 February 2010

Looks increasingly likely the Bank of England will extend quantitative easing

Sterling has fallen against a basket of currencies this morning, after Bank of England Governor Mervyn King took questions on the February Inflation Report in Parliament this morning. The euro rose to a 12 day high against the pound to 0.8824 and was down a cent against the dollar to $1.5421.

King was joined in parliament by fellow MPC members Charles Bean, Spencer Dale, Kate Barker and David Miles, who said that “recovery is most likely to be slow and protracted, leaving output below its previous peak for some time.”

King also said there were definite advantages in extending quantitative easing but warned there was a significant inflationary risk.

Mark Bolsom, Head of the UK Trading Desk said, “King hasn’t really announced anything that we don’t already know- that economic recovery is weak and staggered. Sterling has plunged across the board because it is looking increasingly likely that the Bank will extend quantitative easing.

“King continues to support the depreciation of the pound in the hope it will boost exports – perhaps he’s being intentionally doveish in this speech because he wants to weaken the pound further. Certainly, he will be only too aware the affect his reference to quantitative easing will have.”

Bolsom continues, “It is difficult to suggest a direction in Sterling’s short-term prospects against the euro as it is a tale of two underperforming currencies. Against the dollar, I expect the pound to remain weak as the US economy is recovering a lot faster than the UK."

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