Bank officials this week hinted at radical measures to boost growth. Deputy governor Paul Tucker said the Bank could charge banks for having deposits at the Bank, a measure which, says David Owen at Jefferies International "would probably contribute to weaker sterling". And MPC member Paul Fisher suggested a "prolonged run" of quantitative easing. Basic economics says an increased supply of pounds should force their price down.
Speculation that the Bank's remit might change - to allow inflation to overshoot more or to target money GDP growth instead - is adding to sterling's weakness. Policymakers, says Simon Ward of Henderson Global Investors, have "a strong bias towards currency depreciation".
But such depreciation might be more evident against the US dollar than against the euro, where a lack of economic growth and uncertainty about the debt crisis - exacerbated by the lack of a clear result in the Italian elections - might hold the currency down.
In part, a fall in the pound would be a by-product of looser monetary policy. But it could also be the Bank's intention. In January, MPC members noted that the combination of a big current account deficit and high unemployment was a sign that "the sterling real exchange rate might be above the level compatible with the necessary rebalancing of the economy". It is unlikely that the 5 per cent fall in the pound's trade-weighted index since then has been sufficient to correct this.
