Daily FX Commentary
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Speculation undermines Sterling
Wed, Dec 3 2008, 11:33 GMT
by Tim Clayton
Sterling remained under pressure on Tuesday, weakening to test support below the 1.48 level against the dollar while it also weakened to 0.8550 against the Euro.
In comments on Tuesday, former MPC member Buiter stated that the Bank of England could cut interest rates by 1.50% to 1.50% at this month’s policy meeting. Markets will certainly be expecting an aggressive cut in rates to help support the economy. There will, however, be calls for a more guarded approach, especially as Sterling has already weakened sharply over the past few months. Sentiment is likely to remain generally very fragile ahead of Thursday’s rate decision given the implications of reduced yield support with the UK currency also influenced strongly by degrees of risk aversion
The UK currency failed to hold above 1.50 and was unable to make any headway on Wednesday. As equity markets weakened, Sterling weakened to below 1.47. Further speculation over possible EMU entry at a depressed rate was again a negative factor for the currency. The Euro-zone, however, would be very unlikely to sanction entry at current levels and the losses are more a reflection of a general loss of confidence.
The economic data remained depressed with the services-sector PMI index weakening to a fresh all-time low of 40.1 for November from 42.4 the previous month.
Published on Wed, Dec 3 2008, 15:18 GMT
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Investica Ltd
http://www.investica.co.uk | tim.clayton@investica.co.uk
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