ProgressiveFX.co.uk

The pound has virtually collapsed against the majors shedding over 14% of its value against the U.S Dollar and 6.5% against the EUR this week.

The pounds woes began when markets opened to lower than expected Housing and business confidence figures. Rightmove House Prices index posted a year-on-year drop in prices to -4.9% from -3.3%, while a business confidence survey showed confidence had plunged to new lows in the wake of the economic downturn. The minutes from the last Bank of England MPC meeting revealed a unanimous 9-0 vote to cut interest rates by 50 basis points.

Central bankers were the main market movers, however. Fed chairman Bernanke was the first, testifying before the House budget committee the chairman warned that the U.S economy would be weak for some time still and that a recovery would depend greatly on the health on the financial sector. Dollar support came from Bernanke?s backing of a second fiscal stimulus package, which he had rejected previously, calling the action appropriate considering the risk of a protracted economic slowdown.

BoE Mervyn King, speaking in Leeds, commented on the health of the UK economy and sparked overnight losses on 6% versus the dollar. King stated that the UK economy would enter a recession in 2009 and that he had significant concerns over rising unemployment and a falling housing market.

While markets were digesting these revelations and various economic indicators, traders began pricing the possibility of a further 50 basis point cut in interest rates and the MPC?s next rate setting meeting.

The week ended with the release of UK GDP  q/q results, GDP fell q/q to -0.5% versus a market forecast of -0.2%. The numbers confirmed wide spread concerns that the UK was possibly already in a recession and backed up the BoE Governors assessment of the UK economy earlier in the week.

Oil prices have dropped steadily over the week reaching a low of 62.65 before OPEC announced production cuts and allowed prices to recover some of their losses.