Some Sterling Thoughts

Sterling rose to eight months highs earlier today, before the disappointingly large current account deficit. Sterling held important support near $1.6550 and is trying to recover. Only a break of this support would darken the near-term outlook. A move above $1.6650 would signal the end of the downside correction that saw cable shed nearly two cents.

While looking up something else, I came across an interesting story about sterling, which appears to be derived from a Middle English would "ster" with connotations for strength and stability.

Legend has it that Henry I sought to uphold the intrinsic value of sterling and opposed his money men from debase the currency--which was a pound's weight of silver, divided by 20 shillings or 240 pennies. When Henry I found his money men were issuing coins of inferior quality, he ordered 94 of the 150 money changers to be castrated and their right hands cut off.

Ironically,in the 20th century, sterling lost roughly 985 of its purchasing power. It may also be instructive that in 1080s, William the Conqueror decided to confirm with European convention about the pound and its weight in silver. Arguably he did this not to cede power to Europe, but rather to bolster its own rule insofar as the strength of its currency was seen as a reflection of the power of the government.

Under the regime of floating exchange rates, currency strength is no longer a reflection of the power of the government. Indeed sterling is among the best performers in H1 09 and yet its government is in tatters. Prime Minister Brown does not have a popular mandate. Nor does it appear that he can win one. Yet the idea of participating in continental conventions in order to strengthen UK's hand does not appear to be entirely lost on the current political elite.