Brave New World

Sterling under renewed pressure 09/03/2009

As I write Cable has made a strong break through the 1.3900 support level, with little in the way of support for the pair right down to 1.3550. The pair has traded in a 9 pip range in the last 6 weeks, and any significant and lasting break below the 1.39-40 level would chart a new course for the GBP. There is little in the way of event risk but the currency is particularly sensitive to global risk sentiment. Given that most expectations are to the downside, that the global economy may now have reached its darkest hour, little is supporting sterling. The fleeting support GBP was given on Thursday following the BoE’ announcement the introduction of quantitative easing- a monetary tool as yet untried in the UK- and the subsequent sell-off on Friday demonstrates market nervousness over monetary policy in general and the UK government in particular. The announcement over the weekend that the Government is to take a 75% stake in Lloyds TSB, is the latest in along line of hodge podge announcements for the market to digest.