While the soaring euro has set alarm bells ringing in the eurozone, sterling's rally, also a flipside of the weaker dollar, seems to have been greeted with little more than a shrug by British officials.
Sterling has roared up to 11-year highs above 1.8 dollars recently, having jumped by almost 20 percent over the past year and by six percent in December alone.
The pound received an extra boost on Friday from news that the British economy grew at the fastest rate for almost four years in the last quarter of 2003, raising expectations of another hike British interest rates next month.
But in contrast to European Central Bank officials, who have become increasingly vocal in their warnings about the risks of a strong euro, sterling's surge appears to have ruffled few feathers at the Bank of England.
British politicians have been equally tight-lipped, with Prime Minister Tony Blair declining to comment when asked about currency volatility at his regular monthly press conference last week.
"The way (British) policymakers are looking at this is that they are looking at the trade weighted exchange rate and, until recently, there haven't been many movements in that because sterling has been quite stable against the euro, if not depreciating," said Lehman Brothers economist Alan Castle.
"So when you combine the weakness of sterling against the euro with the strength of sterling against dollar, they tend to cancel each other out."
The Bank of England's trade weighted index stood at 103.1 points on Friday against 107.5 a year earlier.
The eurozone is Britain's biggest trading partner, accounting for 60 percent of its trade, against 20-25 percent with the United States, noted Castle.
Another reason for the Bank of England's relatively relaxed attitude to the pound's rise against the dollar is the strength of the economy, analysts said.
"It's partly because the domestic side of the UK economy is stronger, government spending is booming, consumer spending is reasonably firm, and all that in contrast with Europe where the signs are much more mixed," said Merrill Lynch economist Ian Steward.
"The UK economy is probably less reliant for its recovery on the export side," he added.
In any case it is not all doom and gloom for British exporters: a recent survey by the British Chambers of Commerce showed export orders at their highest level since 1997, noted Steward.
Yet even if the pound was a worry for Bank of England officials, you might not hear much about it.
Since the Bank of England was given independence in setting interest rates in 1997 it has been cautious about what it says about sterling said Steward.
"Economies are not driven by currencies. The US was a strong economy despite the fact that the dollar was very strong through the late 1990s," he said.
Comments
Comments are closed.