The long game for sterling
But once again sterling has managed to find buyers on the weakness, the initial move higher on EUR/GBP having been retraced within 10-15 minutes of the data being released. Against the dollar, the weakness has been more sustained though, cable currently trading at the session lows after the data, reflecting a slightly more assured dollar tone into the European session. With the Bank of England having just signed up for another GBP 50bln of bond purchases, the focus has been falling on other ways in which to stimulate the economy, including the Funding for Lending scheme together with the larger-scale infrastructure projects announced yesterday. Much of this is via guarantees, rather than via expanding the government’s balance sheet, thus skirting around the issue of reversing the recent austerity drive. This has offered some support at the margins to the currency, but of course it’s a long game to play as many projects will take years rather than months to feed through into the real economy.
Michael Derks, Chief Strategist