Pound rallies against the greenback after the Governor's backing

The beleaguered pound broke a lengthy losing streak against the dollar yesterday as Sir Mervyn King's show of support sent traders scurrying back into sterling.

The pound, which hit 33-month lows against the dollar this week, rose as high as $1.5177 yesterday after the Governor of the Bank of England's comments that the currency was now "properly valued".

Sterling has fallen some 9 per cent this year as a recovering United States economy, relative eurozone calm and swelling support for more money printing on the Bank's Monetary Policy Committee prompts doubts over the pound among investors.

The Governor, who said rate-setters "were certainly not trying to push sterling down", is one of three members who urged more quantitative easing last month.

The pound was also helped against the dollar by benign US inflation figures for February. Despite rising fuel prices, analysts said the figures offered no bar against the US Federal Reserve continuing its quantitative easing programme to support the economy.

The Bank of England's chief economist Spencer Dale meanwhile helped the currency by railing against "dangerous talk" that higher inflation "may even aid the recovery". In a veiled warning against dramatic changes to the central bank's inflation targeting mandate, he said there were worrying signs of cracks in the "hard-won consensus – that low and stable inflation was a prerequisite for economic prosperity".

Sir Mervyn also last night rejected the idea that a "major change" to the Bank of England's remit was necessary, despite indications that the Chancellor is looking at an overhaul in order to promote growth.

Speaking to ITV News, the Governor suggested that the present system was already sufficiently flexible. "What's most important is that we commit ourselves again to a very clear target for inflation of 2 per cent" he said. "Of course, what we've seen through the financial crisis is there are difficult judgements to be made about the short run trade-offs between inflation and growth and I think it's perfectly reasonable to ask questions about how those judgements are made."

Comments