A Little Respite for Beleaguered Sterling

Online, September 25, 2009 (Newswire.com) - By David Lamb - Head of Treasury Services

A little respite for beleaguered sterling

The pound has continued its slide against other major currencies as investors continue to view the UK fiscal position as a threat to the nation's AAA credit rating.

However, having shed over 4% against the euro from its highs near the beginning of the month and a little over 3.5% against a broadly weak US dollar over the last two weeks, sterling has finally managed to stabilise this week on a mixture of continued dollar weakness and some assistance from the technical picture against the euro. Having seen 50% of the year's gains against the single currency eroded over the past three months, this classic retracement level just above €1.10 has provided a safety net for the pound. Adding to the mix was yesterday's release of the latest set of Bank of England MPC minutes.

Markets had feared another split in the committee over the size of the asset purchase program and also a mention of the recent comments from Governor King regarding cutting the bank deposit rate. In the event, the committee were in harmony this time around with 9-0 votes to keep both interest rates and quantitative easing at present levels.

However, despite these factors, the long term outlook for the UK remains precarious and as such, any sterling rallies will likely be used as selling opportunities where a sustained break below €1.10 would bring the dreaded parity level back into focus.