Sterling continues to be under pressure. The liquidity crisis is having far reaching consequences. The flight to safety has focused on the Yen, the Swiss franc and the US$ in the form of treasury bonds. UK news focussed on the Consumer Price Inflation figure for July of 1.9% being for the first time in a while less than the target rate set for the Bank of England of 2%. Also the minutes of the last BOE meeting were announced and they showed a 9 to nil vote in favour on keeping UK interest rates on hold. The market now believes that UK interest rates will be kept on hold for a while and is even wondering if the market turmoil will negate the need for a further increase. As I noted at the start, sterling is under pressure.
The Cypriot £ is currently sitting at Cy.£ 0.856/£1 inter bank. The Cypriot £ is pegged to the Euro. It was only a couple of weeks ago that the Cy.£ pushed up to towards Cy.£ 0.87. At one stage, at the start of last week, we were close to Cy.£ 0.854. The ECB had made it clear that interest rates would be increased next month by 0.25%. However given the volatility in the market place and the need for the ECB to supply liquidity, the market is beginning to wonder if the expected increase in € interest rates will happen in the short term. However, we have to remember economically that Euro land continues to leave the UK in its wake. So if you see any respite for sterling against the Cy. £ then it may make senses to look at it as a short term buying opportunity.
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