Sterling continues to be squeezed on the currency markets as the expectation of very low interest rates from the Bank of England saw it stumble further on Friday.

The pound fell by over 3% against the euro last week and by a similar figure against the dollar last week after Mervyn King stoked the fires of a controversial QE plan in a parliamentary testimony. The plan would cut, or make negative, the interest rate banks receive on deposits in an effort to get them to lend to businesses and consumers. This would basically amount to another injection of QE into the UK economy except its funds that have already been released yet not into the wider economy.

Sterling is already coming up on the important pieces of resistance we advised on last week as you will be able to see on the rates table below. GBPEUR is the sickest of dogs at the moment and we would expect its condition to deteriorate if support is not forthcoming around the 1.0990 level.

Data is quiet today although Andrew Sentence, member of the MPC, is speaking in London today. During the week we also have the minutes from the Bank of England meeting and we would expect those to pull sterling lower if indeed there are still members of the MPC who want to increase QE.

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