Sterling pulls it off

Helicopter money

In 1936 treatise John Maynard Keynes came up with a novel way to stimulate economic activity. He suggested the Treasury should "fill old bottles with banknotes [and] bury them… in disused coal mines", leaving the private sector to dig them up. The 21st century version of that is helicopter money.

A major reason for the yen's current weakness is the belief that the Japanese authorities are considering the use of helicopter money to do what a huge programme of quantitative easing has failed to achieve. At its bluntest and most literal, the exercise would involve filling helicopters with money, flying them over towns and cities and chucking the cash overboard into the eager arms of citizens below. A slightly more subtle method would be to monetise the government bonds bought through QE by simply not reselling them.

Either way the government, with the assistance of the central bank, would be creating money from nothing and diluting the value of currency already in circulation. That would be inflationary and inflation is something successive Japanese governments have been trying to achieve for two decades. It would also be negative for the currency, which would contribute to the inflation ambition and which is why investors have become wary of the yen. It fell another -3% yesterday.

Peace dividend

For the first time in nearly a month sterling topped the table of major currencies, strengthening by an average of 1.9%. It was up by two cents or more against the euro, the Swiss franc and the US, Canadian, Australian and NZ dollars. The rally continued to be inspired by the early emergence of a new prime minister.

The pound is up by almost 3% from last Friday morning's positions but don't get carried away: it is still lower by an average of -9.2% than its levels on Referendum Eve. With that in mind there is still a question mark over tomorrow's Monetary Policy Committee decision. Over the last 12 months sterling has declined by an average of -13.6%. The stimulus afforded by that weakness reduces the need for lower interest rates and the MPC may prefer to hold onto its few remaining bullets.

The Bank of England governor was non-committal on the matter when he attended parliament's Treasury Committee yesterday. The main focus of the meeting seemed to be whether or not the bank should have expressed its economic opinions ahead of the referendum

New broom

As Theresa May takes over the stewardship of 10 Downing street there might be one last hurrah for sterling in its current rally. It is not guaranteed though: the certainty of a new prime minister will be balanced by the uncertainty of what she will do.

There are more ecostats on today's list than emerged on Monday and Tuesday but they are not particularly important figures. No UK data appear.

The Bank of Canada interest rate decision comes out after lunch. No change to its 0.5% benchmark is expected.