Sterling loses further ground to the dollar on specualtion of a further extension of QE

Traders continued to sell sterling yesterday, pushing the UK currency down to a five-month low against the dollar, eventually closing at 1.5797.

  • The pound lost ground after an economics and business report forecast that sterling could fall as low as $1.40 against the dollar.
  • The report found that interest rates in the UK were likely to remain at record lows for some time and would remain at just 2.0% until 2014, which would put the country’s yield well behind other major economies.
  • Traders also continued to speculate that the Bank of England might increase the value of its quantitative easing policy beyond the current £175bn, in stark contrast to the prospect of similar special stimulus measures being wound down in other economies.
  • In trading this morning sterling has edged lower, as investors await details of the UK’s inflation rate, which is predicted to fall to 1.3%. Should the rate fall below 1.0%, the governor of the BoE, Mervyn King, must write a letter explaining the fall, though the time of this release is undisclosed.