Sterling’s Lazarus like turn continued unabashed yesterday as it fired itself to 3 week highs against the USD and EUR. The danger today is that these rises are snuffed out quickly and without remorse.

The year 1694 was a fairly quiet year; Voltaire was born, England lost HMS Sussex off Gibraltar but more importantly for us, the Bank of England was created by royal charter. Should the MPC cut rates today by 50bps or more UK interest rates will be at their lowest in the 314 year history of the institution. We believe that a 50bps cut will be the outcome as Mervyn King et al try and engineer the ‘soft landing’ the UK economy desperately needs at the moment.

Sterling has already been marked down overnight as a return to risk aversion saw speculators jump out of GBP and commodity currencies returning to the safe havens of USD, CHF and JPY. This was mainly down to a very poor ADP employment release from across the pond. Close on 700,000 people were made unemployed in the US in December according to ADP; as a result we expect a very poor Non-Farms figure on Friday with risk aversion marking down GBP in the mean time.

We are heading into a very key time for GBP and as the aforementioned Voltaire said ‘Doubt is not a pleasant condition, but certainty is absurd’. Shame he never had access to options and forward contract strategies I guess!

Good Morning.

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