Yesterday saw morning saw a mild spike in the EUR/GBP exchange rate, peaking at £0.8807 to the euro before the results of the Italian election started to become clear and the Euro collapsed:
The spike was widely attributed to the Moody's downgrade, and, insofar as any single cause can be found, it probably was. But it was reported very differently depending on how important the downgrade was felt to be. For instance, whereas I wrote that the pound was "only slightly down against the Euro", others framed the same information as "a new 52-week low".
Both are, of course, true. The pound hit its peak against the Euro last July and has been steadily declining ever since:
Even after improving against the Euro on the back of the news from Italy, you would still have to go back over a year to find the last time before 2013 when the EUR/GBP was so high:
So when we say "the pound hit a 52 week low" after the Moody's downgrade, it's technically correct, but only gets the truth across if you bear in mind that the pound also hit a 52 week low before the Moody's downgrade.
In part, that continued collapse is to do with matters beyond the control of British policy. Until recently, the currency was a safe haven, isolated from the contusions of the eurozone and the US fiscal cliff. That boosted it higher than its resting level, and as the fiscal cliff was sorted and the dust cleared revealing a eurozone still standing.
But it's also an artefact of the growing evidence that the Bank of England is prepared to put up with significantly higher inflation than normal, as well as the perennial driver of all Britain's economic fortunes, our anaemic growth.
In a way, despite the focus on Japan's increasingly aggressive attempts to drive down the yen, it's us who are actually winning the currency wars. The problem is that we aren't getting a huge amount for our victory. Despite what theory says ought to happen, Britain's exports remain flat, and our homegrown industry isn't seeing any benefit either. Meanwhile, the cost of living for Brits soars correspondingly.
It you're looking for the upside of the Italian tuttishambles, then, it's that: your imported truffles and holidays to the French Riviera will finally start to come back down in price.
What do you mean you don't import truffles?