Further buying of US Treasuries and the dollar sent sterling lower this morning, as risk aversion took hold.
Technical traders were quick to notice that the 50-day moving average has crossed below the 200-day moving average, the much-feared ‘death cross’. Fear of what might happen in Europe, combined with expectations of more quantitative easing by the Bank of England (BoE), has driven down sterling of late, but we could see something of a rally next week if the BoE holds off from firing up the printing presses at its October meeting.
RBS thinks that the most likely event is that another committee member joins Adam Posen in voting for more QE, with the bank adding that governor Sir Mervyn King would be that member. It added that the committee would probably delay in order to see how the European crisis plays out through October, but that the probability of more QE by February next year was 80%.