Sterling has taken another hammering with the break through the USD1.6110 technical support yesterday focusing the market’s attention on the 1.550 area. That said some support has been seen this morning with cable clawing its way back above the 1.600 level and EUR/GBP finding sellers ahead of the 0.9190. There release of UK business investment data (-21.8% y/y) this morning has served to highlight the poor economic backdrop, but the pound continues to reel from yesterday’s comments from Governor King that suggested he is unconcerned about sterling weakness. Pressure is also stemming from the horrible budget deficit and continued speculation that the BoE may yet loosen monetary policy further. While the BoE has left the door open for further easing there are some signs that the tone may be altering. Remarks from the BoE’s Chief economist Dale that pumping too much money into the system could create an asset bubble hint that the BoE may becoming more conscience of inflation potential. The minutes of the Sep MPC also make note that the risk that CPI will fall below 1% had fallen from the publication of the Aug Inflation Report. Sterling would find support from a change in tone from the BoE. However, for now it seems likely that sterling will remain under pressure in the run up to the Oct MPC.
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