Foreign Exchange: Sterling Takes A Plunge

Sterling had a bad day Tuesday, plunging through the support area around 1.1700 raising concerns of a continued sell off.

Foreign ExchangeTorfx comment that with the next noteworthy support around 1.1350 they are now seriously concerned about the prospect of a continued sell off.

It was a speech by BoE member Adam Posen, who said that the Bank of England should start pumping more money into the economy, that further triggered Sterling’s weakness on the foreign exchange markets.

Quantitative easing was used extensively last year as an additional form of monetary easing after record low interest rates failed to sufficiently stimulate the economy.

The comments from Posen completely washed out positive retail sales data and the final revision to Q2 growth which confirmed that GDP rose at the fastest pace in nine years.

Markets are concerned with what happens now and concern over the impact of the government austerity measures on consumer spending is weighing heavily on the Pound. This, coupled with the worry that more quantitative easing will effectively devalue the currency unit, there’s no surprise that the Pound is looking very weak.

There was some forced selling yesterday as short term traders were net holders of Sterling, and being caught in the wrong position by Posen’s comments, meaning they had to sell.

TorFX are advising clients to consider covering any Euro requirement now, or consider placing a stop order below the market to protect against continued downside.

Market Analysis by Jon Beddell, TorFX

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Any opinions expressed in this document are aimed at helping readers understand foreign exchange market conditions and developing trends. Readers are wholly responsible for their own trading decisions.


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