Small comments can spark big moves in the currency market.
Yesterday afternoon, Chris Giles of the Financial Times posted a summary of his interview with the Bank of England’s head of markets and quantitative easing Paul Fisher. Fisher rejected the notion that the Bank of England has made a conscious effort to direct future exchange rates:
“The Bank thinks currency movements on the back of so-called ‘Bank signals of benign neglect on sterling’ is absurd. All the Bank’s comments on the exchange rate have been explaining the past, not commenting on the desired future levels of the pound.”
While it does not appear the markets responded immediately to this news, it is the closest thing I can find for an explanation of the pound’s rapid ascent in the past 18 hours or so against all the major currencies. At the time of writing, the pound is up about 1.6% against the dollar from yesterday’s close of the U.S. markets.
For now, I am sticking with my call to short the pound from early last month. My read on the latest Bank of England minutes and Governor Mervyn King’s subsequent comments remains the same: the Bank of England prefers a weaker currency. Accordingly, I am starting new short positions today. I will rapidly grow the positions if the pound confirms a new round of weakness.
Be careful out there!
Full disclosure: short GBP/USD, GBP/JPY