LONDON (ShareCast) - Sterling’s decline over the past few days has been nothing short of dizzying and things could get worse.

It started off with the dollar rallying strongly against a basket of currencies, but today’s UK inflation report really put the tin hat on it, provoking a massive sell-off across the board against a basket of currencies.

To establish whether this is a move we ought to be concerned about I looked at the Sterling Exchange Rate Index (ERI) since 1990.



It does seem that the pound is looking vulnerable at this time. In April this year we made a low of around 91.40 and today’s move has tested this key level.

The major damage was done in March when we broke below 94.00 which had acted as pivotal support since 1997. We’ve been unable to recover this level in the last few months making sterling look increasingly vulnerable to a test towards 90.30, last seen in 1990 and also a significant Fibonacci retracement level.

This would also tie in with a further dollar rally as I highlighted in my article yesterday.

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