Renewed concerns over the Greek economy knocked sterling to a low of $1.5688 this morning.
The US dollar strengthened after European officials failed to offer a plan to half the region’s debt crisis, leading many to speculate that Greece is likely to default soon as the country is not in a position to meet the conditions required for receiving the next bailout tranche in October. Also weighing on sterling this morning were comments from BoE policy maker Adam Posen and business secretary Vince Cable, who on Sunday supported additional quantitative easing (QE).
Last week Adam Posen said that the BoE may need as much as £100 billion added to its existing £200-billion QE program if conditions deteriorate further. Meanwhile, Vince Cable said that the central bank should be ready to open a new round of QE to maintain growth, adding that it could use ‘creative mechanisms’ that go beyond traditional purchases of government bonds, such as buying up corporate assets or bundles of loans. In its latest quarterly bulletin, the BoE confirmed that QE had ‘economically significant’ effects on Britain’s financial system. Investors will be looking to the minutes (due on Wednesday) from the BoE’s monetary policy meeting earlier this month, and any pro-QE converts could see further sterling weakness, with analysts at Commerzbank saying that a slide to $1.5480 is possible.