by Jon Beddell
Foreign Currency Market Update – Sterling / Yen
Sterling fell from 142.00 to 136.00 last week, and promptly lost another three Yen when things got nasty yesterday. Not a good start to the week! A weekend poll showing a high probability of a hung parliament set the scene for a wobbly week, but it was no one factor that triggered the big slide. Another contributor was Prudential’s announcement that it will purchase AIG’s Asian life insurance business. That will require the sale of a large amount of sterling to fund the $35bn price tag, most of which is to be paid in cash. Markets were also spooked by news items concerning Iran’s failure to cooperate with nuclear watchdogs the IAEA. Sentiment toward the pound has been deteriorating sharply in recent weeks, and any one of these news items were excuse enough to cause a stampede for the exit. An apparent improvement in manufacturing activity was completely ignored, and mixed mortgage data did nothing to contribute. Sterling fell the most against the high yielding currencies as investor risk appetite remained buoyant, and higher yields offered differentiation from the low rates available in the UK.
The technical outlook remains negative, and has taken on an ominous tack following the break of key technical support at 140.00. Since then the market has sold off sharply, and may continue to do so. Buyers of the Yen should consider covering any exposure at current levels to avoid further downside.
