THE POUND fell to a three-year low against the dollar on Friday, after a strong increase in the number of US jobs, and the Bank of England’s dovish statement earlier in the week.
Capital Economics’ quarterly review, released today, suggests that the new governor Mark Carney might intervene to target exchange rates. “Further action to keep down the pound is also an option. Although an explicit target would contravene the G7 agreement against currency manipulation, the MPC could set an informal target or to try to justify it on the basis that the UK’s large current account deficit suggests that sterling is still overvalued,” it stated.
Sterling fell below $1.49 for the first time since the middle of 2010 on Friday, collapsing after the robust US jobs data was released. Lower unemployment could indicate than the Federal Reserve will slow down its monthly quantitative easing (QE) purchases at an earlier date, potentially strengthening the dollar.
The previous governor, Sir Mervyn King, suggested in March that sterling had fallen sufficiently in recent years and was now properly valued.