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 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.

The technical outlook has deteriorated again and we're likely to head lower towards support at 9.57. Below there it's the March lows at 9.11. In view of this latest blow, we advise clients with NOK requirements to consider covering now.

Sterling jumped yesterday after the Bank of England left interest rates unchanged at 0.5% and made no further increases to the quantitative easing programme. The pound has been on the back foot since last month's central bank meeting at which they raised QE from £125bn to £175bn. The minutes of that meeting showed that three of the nine strong committee actually voted for a larger increase, putting the markets on notice that further increases were likely. More QE means more money in the system, effectively devaluing the pound against its peers. Traders reacted with relief, bidding the pound higher in the short time since the noon announcement. We will have to wait a few days for publication of the minutes of today's meeting to show how last month's 6-3 skew may have changed.

Meanwhile, news that Norwegian consumer prices rose just 1.9% year on year in August weighed on the currency. Analysts had been expecting a larger increase of 2.2%. That helped sterling make the most of things, rising over 1.2% against NOK compared to a 0.6% rise against the Euro.

The technical outlook is improving for sterling. A sudden intra-day reversal like yesterday's can often signal a change of trend, but it's too early to tell if this is the case here. There is room for cautious optimism, but we still advise clients to consider covering half of any NOK requirement on strength, or all of it if we breach yesterday's 9.71 low.