Market News

Sterling plunged this morning, spooked by a series of negative news reports and comments from Bank of England governor Mervyn King saying that sterling weakness was “helpful” in rebalancing the UK economy. We have been hinting at the BoE’s implicit approval of sterling’s slide for the last few weeks, and now they have come right out and said it! The comments are extremely unhelpful for the pound, which was just starting to gain a little traction yesterday following the release of the most recent BoE meeting minutes which showed that all nine members voted to keep the central bank’s assets purchase programme (otherwise known as quantitative easing) on hold at £175bn. King’s comments have overshadowed the relief rally that we saw yesterday, and the Yen continues to strengthen against most other currencies, and so far the traditionally interventionist Ministry of Finance has remained on the sidelines. During period of excessive Yen strength the MoF has intervened to drive the currency lower (and thus protect the country’s exports from becoming too expensive to foreign buyers), but recent comments suggest that the Japanese view the Yen as nearing a peak against the US dollar. That doesn’t mean the Sterling/Yen rate can’t go lower though, and by all readings the charts look negative. Sterling is now testing the key support just below 1.47, and below there we see 1.43 and 1.39 as the next likely levels. Given the latest bout of sterling weakness, and the lack of any drivers to reverse the situation, clients with Yen requirements should strongly consider covering any exposure.