BoE Governor King Sees Quantitative Easing Within Weeks

BoE Governor King sees quantitative easing within weeks. Noting that with the repo rate now at a historical low, the MPC may need to prepare for "a range of unconventional measures", taking the form of BoE purchases of financial assets, but at the same time stressing that "we are not there yet". "Unconventional measures" in the form of targeted purchases to improve liquidity in certain credit instruments was authorized by the government in Monday's bank rescue package, aimed at improving the flow of credit to companies. But it also gave the BoE the framework to use such measures as a monetary policy tool. King said yesterday that it "will be a matter of weeks not days before a program of purchases can begin, but it will be weeks not months", with the BoE "aiming to complement and stimulate private demand, not substitute for it". The government has initially allocated GBP50 bln to the BoE's asset purchase program, to be funded through Treasury Bills.

Meanwhile, Pound losses accelerated after the Asian squeeze higher provided an opportunity for more fund selling. Fresh sell orders are noted between 1.4050 and 1.4200 in large size, which encouraged heavy selling from interbank names, momentum accounts and model funds. The pair is now trading on a 1.37 handle after clearing more stop losses at 1.3800. The key for Cable is the 1.3690-1.3700 support from 2001 lows, which if broken could set up a long term technical signal, which could see the touted 1.0500 come in to play. The U.K. press continues to churn out negative headlines, with today's Telegraph claiming the banking crisis may last for almost a decade. Leading commentator, Ambrose Evans-Pritchard urges the U.K. not to take Iceland's soft option. He believes that the sterling fall this week is the verdict on Gordon Brown's latest banking effort. Britain has foreign reserves of under $61 bln, less than Malaysia or Thailand and the foreign liabilities of banks are $4.4 trillion, hence the growing concern for the U.K. in the market. CDS default swaps on British debt hit an all time of 125 and the yield spread on 10-year Gilts over Bunds has doubled to 53 since last week.

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