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Interpreting recent movements in sterling

Author

Listed:
  • Astley, Mark

    (Bank of England)

  • Smith, James

    (Bank of England)

  • Pain, Darren

    (Bank of England)

Abstract

The sterling effective exchange rate has depreciated significantly since the start of the financial market crisis in August 2007. Movements in sterling affect UK monetary policy via their potential impacts on CPI inflation prospects, where it is important to consider the reasons behind the change in the exchange rate. Sterling’s movements potentially reflect a wide range of factors in the United Kingdom and overseas, in both the real economy and in financial markets. Indicative evidence suggests that sterling’s depreciation reflected a combination of perceived changes to UK relative cyclical prospects, the perceived riskiness of UK assets and the apparent need for the UK economy to rebalance, the effects of which may have been amplified by financial market factors. But there is substantial uncertainty about the precise role of each factor.

Suggested Citation

  • Astley, Mark & Smith, James & Pain, Darren, 2009. "Interpreting recent movements in sterling," Bank of England Quarterly Bulletin, Bank of England, vol. 49(3), pages 202-214.
    • Handle: RePEc:boe:qbullt:0003
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    References listed on IDEAS

    as
    1. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
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    Cited by:

    1. Astley, Mark & Giese, Julia & Hume, Michael & Kubelec, Chris, 2009. "Global imbalances and the financial crisis," Bank of England Quarterly Bulletin, Bank of England, vol. 49(3), pages 178-190.

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