While the broader market was generally more volatile today, it was the British pound that would take the title of top mover. Commentary and speculation throughout the London session would eventually lead the single currency to a 280-point plunge against the dollar and 120 points measured against the euro.
Some of this morning’s momentum can be tied to a report from the UK’s Telegraph which suggested the BoE had called economists to a ‘crisis meeting’ where the pound’s appreciation, quantitative easing and perhaps lowering the deposit rate could be discussed. A spokesperson for the central bank later denied any such meeting had been called; but these issues are nonetheless in the back of most market participants’ minds and therefore represent a real fundamental concern for the currency. Tempering any relief that may have been found in the dismissal of such a meeting, BoE Governor Mervyn King kept to the doom and gloom in an interview with the BBC in which he said two major UK banks were on the brink of collapse when the financial markets seized on October 6th of last year. With comments like these, a recent vote for a greater expansion to the bond purchasing program and musings for the deposit rate should be cut to encourage lending; it is obvious that the policy maker is not confident in the United Kingdom’s recovery. And, he may have good reason. Chancellor of the Exchequer Alistair Darling reminded us that the government will soon have to curtail spending soon – though he said such cuts will be “sensible” and “measured.” Regardless, Moody’s announced such policy changes meant the nation’s banks faced “very notable” credit rating cuts.
