Analysts are predicting difficulties for pound sterling on the
foreign exchange markets in the coming weeks, following suggestions by
Bank of England governor Mervyn King that a weak currency could benefit the UK's economy.
On Wednesday last week (7th October), sterling's trade-weighted index dropped to a five-month low, followed by a slight rise after the Bank's monetary policy committee made no mention of currency movements on the back of its monthly meeting.
The generally accepted view that officials will keep interest rates low for a considerable period has further pressured the pound, prompting the UK currency's relative yield advantage over the euro and dollar to deteriorate further.
Foreign exchange analysts and currency dealers are now looking to November's deliberations by the central bank, when new economic forecasts will inform its outlook.
George Buckley, chief UK economist at Deutsche Bank, has commented that analysts generally do not expect the Bank to further its asset-purchase plans, despite the fact the country may be on the road to recession recovery.
"Right now we believe they will announce no further additions to the purchase programme in November, but much will depend on the economic news between now and then," he said, singling out this week's inflation and labour market figures and the next round of information on money supply, GDP, retail sales and unemployment.
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