U.K. – Surprise Rebound in 2013!

GBP/USD Daily forex chart

GBP/USD Daily forex chart

Much like the good fortune their friends across the water in Europe saw in 2013, the U.K. started off stumbling in 2013 but ended the year in full stride!

Stumbling was not an exaggeration as the U.K. started off 2013 flirting with triple-dip recession. This of course, prompted comments from BOE governor King to support more quantitative easing (with a bit of opposition from the rest of the MPC), especially as inflation was weak in the first quarter. This prompted Sterling weakness, mainly against the US Dollar and the euro (approximately -8.5% against both).

At around the same time, news that Mark Carney (then head of the Bank of Canada) would take over the Bank of England governor position when Mervyn King retired in July. This sparked more down moves for Sterling when he shared his intentions to keep the easy monetary policy as-is.

Fortunately, the U.K. dodged a bullet in the spring as they narrowly escaped a triple dip recession scenario as data improved, and when you throw in relaxed bank lending rules from the BOE—as well as forward guidance for a future rate hike–Pound bulls rode higher on an increased optimism for the rest of 2013.

Since then, economic data has been up-and-down, but steadily improving, making Sterling arguably the most desirable currency against the other majors. It did very well against its major counterparts in 2013, especially the Japanese yen and the comdolls, and it even bounced back from the hefty beating it took against the Greenback and euro early in the year!

So for 2014, will data continue to improve and could we finally see the U.K. end its own QE program? What do you think?