Things were starting to look better for Sterling late last week as the latest Bank of England decision reassured investors. The lack of any further quantitative easing ("QE") gave traders a reason to buy the pound for once. Unfortunately that reason was removed yesterday as BoE governor Mervyn King gave another gloomy update in his quarterly inflation report. Labelling the durability of the recovery as "highly uncertain", he indicated that further easing could be in the pipeline. Inflation figures for August were slightly higher than expected, but this failed to offset the comments.

Sterling has now decisively broken below key trend support at 8.50, and there is no notable support until the 8.20 - 8.25 area. The revival of the QE spectre is likely to continue to dog the pound leading up to the release of September's Bank of England minutes on 23rd September. We advise Danish Krone buyers to consider covering their requirements now to avoid further downside.