Sterling Digest, January 27 2013: follow the trend

KAL Cartoon in The Economist

Can the British economy really afford to abandon the EU?

Last week was epic for sterling. The $EURGBP rallied to new highs above the psychologically important 0.8500 level. The $GBPUSD, $GBPNZD, $GBPAUD, and $GBPCAD all fell to fresh 2013 lows early in the week heading to the Bank of England minutes release. However, when the BoE minutes revealed that it was ready to end quantitative easing and unemployment in the UK fell to new lows, sterling rallied off the lows. In fact, thank in large part to the Bank of Japan, the $GBPJPY rallied to its highest levels in over 2 years. Despite policy makers in the BoE calling for an end to QE, the economic realities of the UK may not allow that to happen. And since BoE meeting minutes are backward looking, sterling may not be able to sustain its Friday gains in this new week of trading. With a very light economic calendar from the UK this week, expect sterling to trade very technically and at the whims of the USD with the $FED rate decision looming mid-week.


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