Down, down, down

Julian Harris
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Sterling slumps even further as Bank governor votes for more QE

THE POUND tumbled to an eight month low against the dollar yesterday, after the Bank of England revealed that its governor Sir Mervyn King has begun pushing for another round of monetary stimulus.

Sterling has taken a hammering so far this year, dropping from around $1.63 at the start of 2013 to $1.523 by last night.

Earlier in the day it had fallen off a cliff as the City reacted to the publication of minutes of February’s meeting of the Monetary Policy Committee (MPC), losing $0.01 in value during just a quarter of an hour of trading.

The minutes showed that Sir Mervyn was one of three senior Bank officials to vote for a further £25bn in asset purchases.

The move, which would take the total level of quantitative easing (QE) to £400bn, was backed by David Miles and executive director Paul Fisher – yet defeated by the six remaining members of the committee.

Nonetheless, the shift by two of the Bank’s most senior

policymakers – Miles has been voting for more QE since November – prompted investors to move even further from sterling.

The markets were also affected by dovish noises emerging from the MPC’s minutes.

“The committee agreed that it was important to communicate clearly its willingness to bring inflation back to the target over a longer time horizon than usual,” the minutes said.

The MPC added: “as long as domestic cost and price pressures remained consistent with inflation returning to target in the medium term, it was appropriate to look through the temporary, albeit protracted, period of above-target inflation.”

Last June Sir Mervyn was also part of a three-man push for more QE, on that occasion endorsing another £50bn being added to the Bank’s balance sheet. The next month, July 2012, saw a clear majority of seven of the MPC wave through £50bn of extra QE, raising the total amount to £375bn.

Sir Mervyn only has four months left in the top job before stepping down to be replaced by Mark Carney. His vote surprised many investors, due to recent speeches in which the outgoing governor indicated that the effectiveness of the QE programme was fading.

Incoming governor Carney may look for new forms of stimulus, with some investors saying that the Canadian’s expected dovish stance is already weighing on sterling.

“Carney is already easing policy, before he even takes up his post,” Danske Bank economist Lars Christensen told City A.M.

“Market forces are determined by expectations.”


GOLD dipped to a fresh seven month low last night, as the precious metal was dealt a triple blow of hawkish Federal Reserve minutes, growing risk appetite, and speculation that a hedge fund is having to withdraw from its commodities positions.

Spot gold was down at $1,570.79 an ounce, having begun the day comfortably above the $1,600 mark.

“There are rumours that a large commodity hedge fund blew up and was forced to dump its holdings, sparking a selloff across markets,” said Adam Sarhan, chief executive at Sarhan Capital in New York.

The yellow metal has been on the decline since the autumn. Having come close to the $1,800 level on 4 October 2012, it has lost significant ground while more funds have gravitated towards resurgent equities markets across the globe.

Other commodities also showed notable declines, during yesterday’s trading.

Silver was down over three per cent to $28.5 an ounce in the US last night, while Brent crude lost 1.86 per cent.

Gold’s dip has seen it create a so called death cross – the term investors use for the 50 day moving average line falling to cross the 200 day line.

But Michael Hewson of CMC Markets warned off enthusiastic bears by saying the fall may not continue. “In the last 10 years we’ve seen six death crosses and only one has worked with any degree of success,” he explained.