The GBP enjoyed a brief period of strength in the immediate aftermath of the release of February inflation figures and it was helped further when Swervyn Mervyn King told the UK Parliament’s Treasury committee on Tuesday that he saw no reason for GBP to fall further. But the next day, a poorly received 40-year gilt auction sent the currency back into a tailspin, raising issues about just how the UK government intended to pay for all of its spending.
The reaction may well have been overdone, but the fact that the UK’s Debt Management Office was attempting to sell something of such a long duration the day after data showed we still have inflation, not deflation, suggested a couple of things to me: the Chinese wall between the DMO and BoE is very high; and/or the DMO is trying to show it’s as clueless as the central bank.
I might act as if I have an opinion on everything, but I am no expert on the gilt market. So I checked with my colleagues here at Euromoney. One of them sent me an analyst’s instant reaction to the dismal auction.