Sterling was sent on another rollercoaster ride yesterday as traders scrambled to digest fresh economic data alongside the latest messages emerging from Theresa May’s ruling Conservative party.
The pound plummeted below $1.27 for the first time since 1985 as foreign exchange investors brushed off a relatively positive survey of economic activity in the UK’s dominant services sector.
Healthy figures on the state of the economy appear to have been dismissed in forex markets of late, with sterling’s plight seemingly closer-tied to concerns that the country’s prospects could be damaged by the impending split from the European Union.
While positive news has lifted London-listed stocks – which typically benefit from a weakening currency – the pound has lost considerable ground since early September.
Nonetheless, sterling rebounded strongly yesterday afternoon, a move some analysts attributed to Prime Minister May’s unexpected comments on monetary policy.
The PM said that loose policy had “bad side effects”. Despite the Bank of England’s independence from government, May raised eyebrows by pledging: “A change has got to come and we’re going to deliver it.”
From a low of around $1.269 earlier in the day, the pound bounced back to above $1.274 last night. If the new Conservative government loosened its monetary stance as expected, and the Bank tightened, the pound would climb against other currencies.