Once again the pound has become unfashionable – and the PM’s speech didn’t help

Financial markets seem to react to each tiny bit of information that comes along – no wonder they get a bad name, writes Hamish McRae

Wednesday 24 November 2021 00:40
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<p>Ahead of the Johnson gaffe, a number of US banks put out notes to investors saying they expected the pound to decline</p>

Ahead of the Johnson gaffe, a number of US banks put out notes to investors saying they expected the pound to decline

Boris Johnson loses his notes when talking to the CBI and the pound plunges. Joe Biden reappoints the head of the Federal Reserve and the dollar soars. Neither in the broader scheme of things was a big deal, but such is the nature of financial markets that they seem to have to react to each tiny bit of information that comes along. No wonder the markets get a bad name. So what is happening?

Several things. For a start, the very nature of a market – any market – is that it has to be open. If it isn’t, you cannot buy anything. The global foreign exchanges are open 24/7, and if you turn up at an airport needing to buy euros or dollars in the middle of the night – and it is always the middle of the night somewhere in the world – you can get them. There is a price, albeit in airports a rip-off one, which is why most of us change our money somewhere else.

In all markets there has to be someone else on the other side of the transaction. You can’t sell a house if there is no one to buy it. In extreme situations, houses get sold for a pound, or in Europe a euro. We reported on the popular Italian scheme where you can buy a home in reach of ski resorts for just that. The market was in effect frozen – and the only way of getting it open was to offer a ridiculous price.

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