Sterling is finally sliding against the dollar and the euro

... and it's all down to Bank of England governor Mark Carney and his 'unreliable boyfriend' antics.

by Emma Haslett
Last Updated: 08 Jul 2014

Much fun was had by all at a hearing of the Treasury Select Committee, which spent the morning quizzing Bank of England governor Mark Carney about the Bank's latest inflation report. Carney's performance wasn't particularly strong, to the point where MP Pat McFadden equated Carney and his moving interest rate goalposts with an 'unreliable boyfriend - one day hot and one day cold'.

McFadden isn't wrong: having hinted that he was keen on the idea of raising interest rates sooner, rather than later rise earlier this month, which prompted huge gains in sterling, Carney's now gone all cool on us.

'What's most relevant to [business people]... is not the timing of the first interest rate move but the expected path of interest rates over the medium term,' he explained. It's enough to make us paranoid. Before long we'll be drunk-dialling him, demanding an explanation.

Anyway, the good news (for businesses) is that his comments have befuddled markets so much they've started to get all nervous about the pound. As a result, sterling spent the morning merrily plummeting against both the dollar and the euro. Not exactly a disaster: yesterday, the pound/dollar exchange rate hit a five-year high, so businesses like foreign exchange-stricken Asos could do with being cut a bit of slack.

Here's what sterling looked like against the dollar in mid-morning trading:


Source: Yahoo Finance

And here it is against the euro:


Source: Yahoo Finance

The committee was also interested in the so-called 'productivity puzzle', ie. the fact that although unemployment is dropping, productivity is still 'exceptionally weak'. Carney said the gap between the two figures 'suggest[s], to me, that there has been more spare capacity in the labour market than we previously had thought, all things being equal'. Which suggests that - well, that he's still a bit confused.

Given the fact that Carney and his Monetary Policy Committee colleagues gave absolutely no indication whatsoever on interest rates, that makes two of us. Sigh. 

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