The idea that the UK is facing the possibility of a full-blown currency crisis has gathered increasing momentum since the start of the year, as GBP has continued to battle with the JPY for the dubious distinction of being the world's worst performing major currency (for the record, the JPY has once again pulled ahead in this race to the bottom). Speaking in Amsterdam last week, the Dutch finance minister, and president of the Euro Group, Jeroen Dijsselbloem warned "England is vulnerable…a new sterling crisis could happen again."

Before we get into whether such speculation is justified, or merely hyperbolic European schadenfreude, it is useful to first define exactly what a currency crisis is. Traditionally, a currency crisis is associated with fixed exchange rate regimes (such as the last UK currency crisis in 1992, when GBP was a member of the ERM), and occurs when speculators determine that the peg

Moody's took away the UK's triple A rating late Friday. A ratings downgrade has long been rumored, and although the timing is always surprising, the move itself has long been anticipated. Sterling slumped on the news in thin dealings, losing a cent in about 30 minutes.

When it comes to corporate ratings, we can appreciate that rating agencies may have access to private information. They may also be of value in some developing countries, where information is more difficult to secure. However, when it comes to large developed countries, the rating agencies have access only to public information and it is the same information that investors use to make their decisions.

That there is extremely little value-added or new information contained in a rating agency is evident in the lack of market response to downgrades of Japan, the US, Austria, and France, for example. There is little reason to expect

The late reluctance of GBP/USD to penetrate psychological support at 1.6000, despite the late awakening of risk aversion, would find support in today's BoE gathering.

… End of stimulus in the UK?

The FX community agrees that the central bank commanded by Mervin King would leave both the refi rate and the Asset Purchase Programme, at 0.5% and £375 billion respectively, unchanged. However, it is also expected that the central bank would start to look for ways to slow down the ongoing easing cycle, in light of the creeping recovery in the British economy, sparked after the reading out of the Q3 GDP and highly influenced by the Olympics. Although market participants are not that cheerful when it comes to forecast Q4's economic activity, the truth is the last results in the UK fundamentals would prove the BoE is right.

In addition, and supporting the