There’s no two ways about it: sterling got crushed yesterday. Like Icarus flying too close to the sun sterling flirted once too many with a break above 1.70 our wings disappeared and we fell to earth in dramatic fashion.

The reason of course was the Bank of England decision to extend its quantitative easing plan by an additional £50bln. It was accompanied by a downbeat statement over the length and breadth of the recession. Obviously there are increased inflation fears for the UK economy from an expansion of the money supply but as one American commentator put it ‘The MPC probably just wanted to ram this sucker home’. Indeed.

Sterling lost over a cent against the USD and EUR in 5 seconds and continued lower over the course of the day finishing in the mid 1.67s and high 1.16s respectively

The ECB announcement was an altogether more staid affair. Trichet and the rest of the council voted to keep the rate at 1% and will review future monetary policy decisions on a ‘wait-and-see’ basis.

We believe that continued risk for sterling is apparent and that the main contributor will be Wednesday’s Inflation report; for more details of our thoughts you can read our ‘Special Report’ here. We of course have Non-Farm Payrolls from the US today with consensus views at -340k. We believe that with a weak ADP we could see a figure around -380k. We also have German Industrial Production at 11.00.

Have a great weekend.

Latest Exchange Rates At Time Of Writing