Pound slides sharply against the euro on speculation over possible interest rate cut

Sterling fell to a near four-month low against the single currency yesterday following Mervyn King’s suggestion of an interest rate cut.

• Sterling fell to a low of 1.1233 after Mervyn King said that the central bank was considering reducing the interest rate in order to provide a disincentive for banks to hoard cash, encouraging them to lend.
  
• According to analysts, such a move would effectively be an expansion of the central bank's quantitative-easing programme, and these monetary risks constitute a major hurdle for sterling.
  
• King’s statement stemmed an earlier rally in which sterling briefly advanced after UK consumer price inflation data came in stronger than expected in August.
  
• Figures showed UK consumer prices rose 0.4% last month to give an annual reading of 1.6%.
  
• Additionally, in the eurozone, data showed that German economic sentiment rose to 57.7 in September, higher than the 56.1 reading seen in August, which further supported the euro.
  
• The pound eventually closed down at 1.1247, with rallying global stocks failing to buoy the UK currency, and the price has continued to slide overnight, with trading currently around 1.1200.