Sterling fell in the first part of the week because traders decided that US interest rates were likely to rise before ours do, thus making the dollar a more attractive currency to hold.
No big deal you might think, but seeing the move, the hedge funds jumped on the bandwagon, sold sterling and then started talking loudly about how the pound would carry on downwards. Financial Times journalists picked this up and the result by midweek was a headline saying that the pound had plunged by 9 per cent since January– supporting the view that it was clearly on the skids.
That in turn was the cue for the AA and others to wheel out the usual doom-laden comments about how weaker sterling meant an imminent rise in petrol prices, with all the financial pain that would cause for the nation's motorists and cash-strapped households.
Likewise the travel companies warned those planning a holiday abroad – presumably the less cash- strapped households – to buy their currency quickly.
The trouble is, you can prove anything with graphs depending on what scale and starting point you use – which is why I never believe economists who use them. The pound has indeed fallen sharply since January, but it was quite strong last autumn, so had reached relatively high ground. Go back a bit further and the picture is quite different. This time last year, for example, it was trading at $1.54. As of Friday evening it was at $1.51.
This means that over 12 months, it has plunged all of three cents.
Forgive me if I conclude that as sterling crises go, this one is a bit of a yawn.Reuse content