Investors’ changing appetite for risk was the most important factor in the euro’s week. When they leaned towards nervousness – as they did when Donald Trump edged ahead of Hilary Clinton in the US opinion polls – they bought the safe-haven euro, yen and franc. The three currencies were just about unchanged on the week against one another while the euro picked up a cent and three quarters from the listless US dollar.
Against all the odds it was sterling that took the honours among the majors, sharing first place with the NZ dollar. It added two thirds of a euro cent and strengthened by an average of 1.0% against the other ten most actively-traded currencies. The main factor in its favour was the high court’s ruling that parliament must approve the activation of the Article 50 process of leaving the EU. Rightly or wrongly, investors believe this improves the odds of an amicable divorce; one that will do minimum damage to the UK economy.
Eight months ago the Bank of England governor was unwise enough to tell parliament’s Treasury Committee that leaving the European Union might have adverse effects on the UK economy. Since then, certain MPs have been on his case.
Last month even the prime minister appeared to criticise the bank’s monetary policy. In recent weeks, because of this, investors were wondering if Mark Carney might leave the bank at the earliest opportunity in 18 months’ time when he will have been there for five years. The governor put an end to that speculation on Monday when he said he would stay for a total of six years, long enough to see through the supposedly two-year-long Brexit process. Investors expressed their appreciation for his commitment by buying the pound.
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