Archived IMT (2008.10.09)

Despite the euros recovery yesterday, sterling persisted on the downside, reaching a fresh 34-month low against the dollar. The Bank of Englands 50-bp rate cut may have been forced by a coordinated move, but it also heralds the beginning of series of rate cuts. We expect the BoE to reduce its base rate by an aggregate of 75 bps to 3.75% by year-end from the current, and extend towards 3.25% by end of Q1 2009. Todays BoE MPC meeting was cancelled in light of yesterday's rasing, thus allowing room for fresh easing in November. With EURUSD stabilizing relative to GBPUSD, EURGBP pushed to as high as 0.7955, facing 0.80 as an interim resistance. Cables resistance drops from $1.77 to 1.7450, at which point its expected to draw fresh sell orders for an attempt onto $1.71. We're even seeing a sharp recovery in the Aussie against Sterling, which could extend to as high as 0.4250 from the current 0.4090 and yesterday's 0.37.