What Mervyn King can do?17 June, 2008, 15:16. Posted by Zarathustra
Tags: Bank of England, Mervyn King
The U.K. pound dropped the most in two weeks against the euro as traders pared bets that the Bank of England will increase interest rates on speculation worsening inflation will stifle economic growth.
The currency also snapped two days of gains versus the dollar after a government report showed inflation last month reached the fastest pace in at least a decade, prompting central bank Governor Mervyn King to say the direction of interest rates is "uncertain.” Two-year government bonds rose the most in more than two months.
"There’s nothing there that would suggest sterling strength,” said Simon Derric, chief currency strategist in London at Bank of New York Mellon Corp. The number "is not quite enough to justify a trigger. The Bank of England is not really likely to jump either way at the moment.”
Inflation is everywhere, so what can central bankers do? But the first paragraph is quite funny to me. If traders expect rate to increase, why pound sterling would decline?