A Sterling Request
A request to the Statistical Ambassadors sought to understand whether the British currency had fallen to an historical low.
At the moment of writing (about 5pm on 9th August), the verdict was unclear.
Breaking the Bank
The Bank of England publishes an index of the currency’s effective exchange rate. This rate is not ‘official’, and no more authoritative than those of commercial banks. According to the Bank’s notes on spot exchange rates:
The data represent indicative middle market (mean of spot buying and selling) rates as observed by the Bank’s Foreign Exchange Desk in the London interbank market around 4pm.
When I looked, the exchange rate data series covered 1990 to 8th August 2019:
The narrow trade-weighted exchange rate would need to decrease a further 0.7% on its latest value in order to reach a new low (from 1990 onward).
What happened on the 9th?
The Office for National Statistics published its GDP quarterly growth estimate for the second quarter (April to June) of 2019. The central estimate was of a contraction of 0.2%. This was the worst quarter for GDP growth since 2012.
In order to understanding what was happening in current markets, I looked at Bloomberg for exchange rates. The public version only holds the last five years.
At 5pm on 8th August, it was opaque if that threshold (of 0.7%) had been broken. The GDP:EUR exchange rate had fallen on the day by around 0.8%. The Euro area has the largest weight in the Bank of England’s currency value indices. By that time, the GDP:USD rate had reduced by 0.4%.
At that time, Sterling was close to historic lows, but it was unclear if a new minimum was already attained or would be later that day. After a brief reprieve, the currency cascade continued.
It was uncertain what reference points the Bank used, and what influence currencies which were not the US dollar nor the Euro were having.
News evolve quickly, and we need to be muscular about uncertainty.
