Overall, Sterling should still prove relatively resilient given the amount of bad news towards the economy and currency priced in.
Sterling dipped towards 1.4850 against the dollar on Wednesday before rebounding towards 1.50. A break above this level for the first time in three weeks pushed the UK currency sharply higher to a peak above 1.5250 before a retreat with tough technical resistance levels likely to be seen above 1.5250. Sterling also gained ground against the Euro, but was unable to sustain the break of the 0.90 level triggered by stop-loss Euro selling. The latest gilt auction secured strong demand which underpinned currency sentiment to some extent.
The Bank of England has cut interest rates by a further 0.50% to 1.50% at the latest policy meeting which is a record low for UK rates. The bank statement was downbeat with warnings that credit availability had tightened further while the rate of economic contraction had intensified during the fourth quarter.
The statement will maintain expectations of further cuts. The bank, however, also stated that rate cuts, tax cuts and Sterling weakness would provide a considerable stimulus. These comments suggest that the bank will be cautious over the next few months and may dampen expectations of even more aggressive moves. Sterling gained ground following the cut.