Nevertheless, ongoing economic weakness means further loose monetary policy is likely to continue when Sir Mervyn's successor, Mark Carney, takes the reins in June. He's already indicated that he could abandon inflation targeting, and that could see the pound continue to drift downwards against other major currencies. Already a likely tip back into recession – against signs of recovery elsewhere - has contributed to the pound weakening sharply against major currencies in the last month, down around 3 per cent against both the dollar and euro.
Aside from the fact that sustained bouts of Sterling weakness always seem to coincide with my planned trips to the Continent, there is a strong case that this news isn't as bad as it seems. A weak pound could bring about some of that recovery Sir Mervyn is looking for, boosting exports, reducing demand for imported goods, and encouraging global businesses to set up shop here. Such are the benefits of weak currencies that there have been high profile suggestions that a new 'currency war' could be brewing, led by Japan. According to a tweet from FT editor Lionel Barber this morning, competitive devaluations are the talk of the town at the annual Alpine power-broking get-together in Davos.
Whatever the case, wild swings in currencies are likely to prove another mental obstacle for investors to overcome in an already difficult-to-read market, because they can have a major effect on short-term returns. Take one of our 2012 tips of the year, US household goods giant Procter & Gamble - in absolute terms the shares were up over the year, but the strength of sterling wiped out most of those gains, and meant its dividend was also worth less to UK investors.
On the flip side, international companies are good to own when the pound is weakening, especially high yielding ones, because their income flows are worth more, and their capital value gets a nice currency boost too. Simon Thompson's Dogs of the S&P portfolio is a useful example - it's up 19.4 per cent on a dollar basis, but more given cable's descent this year, easily covering any extra dealing costs overseas trading may have incurred.
But such gains are ultimately illusory, because with every government wanting to be more competitive sterling will undoubtedly harden, relatively, at some point again. Which makes a strong argument for putting thoughts of currency movements to one side when investing, and simply buying the best companies wherever you find them. That’s one reason why we’re covering more and more international equities than ever - you'll find many suggestions in our lead features this week.
