Sterling in currency trading

One of the more interesting developments over the past few days has been the decoupling of the cable from risk appetite. Instead, the sterling in currency trading has been based more on U.K. fundamentals. This might be the reason that today’s quantitative easing announcement from the Bank of England, along with its lukewarm reasoning on the economy, has sent the sterling lower in currency trading.

Over at FX360, Boris Schlossberg expresses his opinion about the decoupling of cable from risk appetite:

In the past several days, the unit has decoupled from risk appetite, remaining strong despite lack of further gains in equity prices as currency traders have focused on improving UK fundamentals instead. However we continue to believe that the uptick in UK economic data is a direct result of much better capital market performance and could quickly reverse if equities see a correction. To that end, the trade in sterling very much remains a trade in risk.

It will be interesting to follow further developments, and see how things play out in forex trading going forward.