Sterling was marching steadily higher through mid October until we hit a major stumbling block on Friday 23rd. Third quarter growth figures didn't show any growth at all. In fact the economy contracted by 0.4% instead of the 0.2% expansion that analysts were expecting. That prompted a vicious sell off, sending the pound three cents lower almost immediately. Last week was somewhat better as the stock markets finally entered correction territory, sending investors scurrying away from high yield currencies like the Aussie dollar, and into more defensive plays including the dollar and pound. By Thursday/Friday the previous week's growth shocker was looking more like a minor blip as sterling rallied back to the levels it was trading at the start of October. Much now depends on the Bank of England meeting this Thursday (November 5th). It seems to have come around very quickly after they elected to keep interest rates and quantitative easing on hold in October. Another "no change" vote would certainly help sterling's cause this week, especially if the subsequent meeting minutes (usually released a few days later) show another 9-0 vote.

The technical outlook remains negative, although we are seeing some "green shoots" for the pound. The last two weeks' rally is too little to say the trend has changed. For that we would need to see a sustained improvement or signs of a real base being built. At the moment we have to view this bounce as a correction, and accordingly our advice is for AUD buyers to cover at least half of any requirement now while the exchange rate is trading nearly ten cents off the recent lows.