Sterling Still Under Pressure

Recession profiles in all the major economies will provide some degree of protection for Sterling, but rallies will quickly attract selling pressure given that confidence has been badly damaged

After a tentative recovery, the rally gathered pace during Monday and Sterling pushed to a high above the 1.50 level. The UK currency also recovered to near 0.84 against the Euro with reports of short covering following recent heavy selling. Sterling was holding close to the 1.50 level on Tuesday as global stresses curbed strong support for any of the major currencies.

The headline UK consumer inflation rate fell to 4.5% in October from 5.2% as energy prices fell sharply while the core rate fell to 1.9% from 2.2%. This was the fastest monthly decline for over 11 years. The data will maintain expectations of further near-term interest rate cuts as it does give the bank slightly greater room for manoeuvre. Comments from Bank of England officials will be important. Any suggestion of heavy political pressure on the bank would be very damaging for the currency.

There is also likely to be some speculation that the government could consider moving towards Euro entry to help lessen the risk of further Sterling selling even though there would be very serious political and economic barriers to entry.

Investica
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