How are ex UK people doing

[Jay]

"You are falling into the trap of thinking that because X is followed by Y, Y must have been caused by X." 

This would seem to be the case:

"The euro saw a new high hit of 0.8412, the highest level since its

inception in 1999. The reason for the sudden move was helped due the

BoE Governor Mervyn King painting such a bad picture on the state of

the UK economy." See HERE

and Friday 14th:

Watch out for Jean Claude Trichet (Euro zone equivalent to Mervyn King)

speaking tomorrow afternoon at 1.30pm. What happens next heavily

depends on how down beat his comments are on the Euro zone.

There are plenty of other examples!

[allanb]

I believe that there are so many factors influencing exchange rates that nobody - not even a journalist - can really know which of them caused a particular movement.

But journalists like to give the impression that they know why things happen.

Here's an interesting piece of reporting from the Daily Telegraph on 22 October:

"He [Mr King] finally broke cover on Tuesday night to deliver the news - blindingly obvious to most people for some time - that the economy is in recession. Mr King's intervention certainly made an impact."

Now if it was blindingly obvious to most people, it cannot have been a surprise to the currency markets.  So why did it have such a dramatic impact?

Well, looking at the numbers, I don't think it did.  On the 21st the rate was around 1.285.  He made his speech that evening.  The next day it went to about 1.260: an important change, I agree.  For a few days it drifted down further and spent some time at around 1.24.  

However, it then rose again and for three days (October 29-30-31) it was at 1.268 plus - higher than the day following the notorious speech, and only about 1.3% lower than the day before it. Why the rise?

Since Oct. 31 it's dropped like a brick - but that's already more than a week after MK's comments.  It doesn't take the markets a week to react to important news.