The UK currency moves will continue to be influenced strongly by trends in the domestic and global banking sectors. The latest support scheme will provide a degree of short-term relief.
Sterling was unable to break above 1.46 against the dollar during Wednesday and weakened sharply during the day with a low below 1.42. Sterling also retreated to beyond 0.89 against the Euro.
Comments from Bank of England officials were generally downbeat with Blanchflower warning over the risk of a protracted recession and worsening conditions. There were also renewed fears over the banking sector as the government prepared to launch a bank stabilisation plan with the expectations of a huge public debt burden an underlying negative factor for the currency.
Sterling was trapped close to 1.42 in early Europe on Thursday as the Nationwide reported a further 1.8% decline in house prices for February. The Royal Bank of Scotland posted losses of over GBP25bn, although confidence was supported to some extent by the plans to place bad loans in a government-supported insurance scheme.
Bank of England Governor King stated that the bank had been powerless to avert the banking crisis