With the calendar quiet on the data front, sterling has fallen by more than half a percent against the US dollar to trade just above the $1.59 level and has also lost ground to the euro, dropping below €1.14.
The pound has come off last week’s eight and a half month high against the greenback on doubts about how aggressive Federal Reserve monetary easing will be. There is also a sense now that Fed easing has been priced in leading some investors to cut their bets against that the dollar will decline.
The UK currency also remains vulnerable ahead of the publication of the latest MPC minutes and the UK government’s spending review, both on Wednesday. The review could increase speculation for more quantitative easing in the UK, and the BoE minutes could see a dovish move led by Adam Posen, putting sterling under further pressure. This all lends itself to the hypothesis that GBP will still have a little way to go towards the downside before things improve.
In other news, the outperforming aussie dollar made a move to beat parity against the US currency on Friday off the back of Bernanke’s speech where he outlined the Fed’s case for more easing, but has since dropped back to 0.99.
Tom Hampton
Analyst - Caxton FX
