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The British pound hit a high of 1.4605 this morning after falling to a low of 1.4137 yesterday. Although we have a mild improvement in risk appetite that is helping to propel the GBP, CAD, AUD and NZD higher, 2 stories making the wires are responsible for the volatility in the British pound.
Story #1 : Darling to Get Attacked Over Sterling Slide
The main story behind the British pound rally during the early European trading session was talk that European finance ministers will be attacking UK Chancellor Darling over the sterling’s slide. Over the past 6 months, the British pound has fallen more than 20 percent against the Euro and close to 30 percent against the US dollar. The most dramatic slide has been seen in GBP/JPY which dropped 55 percent.
Story #2: HBOS Expected to Report a GBP8.5 billion Loss
However some of the gains in the British pound were erased beginning around 8:40am this morning after news broke that Lloyds Banking Group expects HBOS to report a GBP8.5 billion loss. Remember that the UK government owns 43% of Lloyds so a loss for Lloyds means a loss for UK taxpayers.
Impact on British Pound
The threat of criticism at the G7 meeting should limit any further losses in the British pound. However, once the G7 meeting is over, we could see short term weakness in the pound. The Quantitative Easing that the BoE is expected to undertake should drive EUR/GBP towards parity.