History shows sterling not heading off a cliff
Dollar hovers near record lowNO PANIC
The ferocity of the fall, however severe, has not sparked panic among traders, most of whom are reluctant to coin it a complete capitulation, arguing that it will inevitably fall towards fair value levels, but not until well into next year.
"My feeling is that we are going through $1.80 pretty quickly, and eventually to $1.70 by the first half of next year," Derrick said.
An 8.6 percent fall in March 1991 came as the dollar got a hefty boost from the U.S. victory in the first Gulf War and as a multi-year crisis in the UK housing market started to unfold.
Three of the months in which the pound lost 6 percent or more in the last two decades were in the high inflationary years of 1988 and 1989.
CONTEXT
The current problems for the UK economy and the pound have mounted slowly in the wake of a year-long global credit crunch with spiralling inflation and slowing activity, calling into question the BoE's ability to react nimbly.
Looming recession, pointed to in the Bank of England's Inflation Report last week, seems to have tilted the dial in favour of interest rate cuts from the current 5 percent, which would erode the G7's highest-yielding currency's yield appeal.
Yet the current move is being received calmly, with some voices sounding almost relieved, as an inevitable capitulation to mounting international and domestic economic stress versus a seemingly reinvigorated dollar and a domestic clamour for growth-boosting interest rate cuts.
One factor keeping current and future moves in order is sterling's fairly resilient recent performance against the euro - backed by the dollar's major comeback from record lows.
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