Sterling punished by UK bank bail out

Bob Munro, Senior Currency Strategist at HiFX comments, "Yesterday's huge UK banking bailout package was completely overshadowed by RBS announcing a UK corporate record GBP28 billion loss, leading to their share price falling 70%. To put it context, having taken in GBP 32 billion of funds from the Government and elsewhere recently, their market capitalisation is now less than GBP 5 billion. With equity traders now selling the other UK bank shares, many commentators are suggesting that full nationalisation of the UK industry is very close.

"This major escalation of the credit crunch in the UK has prompted traders to ‘punish' Sterling, sending it into a tailspin. GBP/USD has slumped to a 7 year low against the Dollar at 1.3860 and down to 1.08 against the Euro from 1.13 on Friday. The fall against the Dollar has been exacerbated by a simultaneous surge in optimism in the US Dollar ahead of the Obama inauguration.

"With the credit crunch markets remaining so illiquid, and volatility levels remaining so high, there is a dearth of traders brave enough to take the contrary opinion on Sterling".