GBPUSD crashed today because the UK announced a record external debt position. It fell 200 pts into the 1.44 handle at print and has been bouncing up and down since.
Besides the USD, investors fled into the EUR as well. The EURGBP surged to a 6 day high at high 0.89.
With a large external deficit, it would be harder for the UK to implement yet another stimulus package through the issuance of government bonds or gilts. This is because they are already in heavy debts and will face a lot of political resistance trying to push this through.
BOE governor King, has also previously indicated his concerns about the country's bugeoning debts and opposed another stimulus package.
In effect, policymakers' hands are tied. There are less options to boost the economy now. Interest rates are already at an all time low at 0.5%, this means they can't cut much further. They have already tried Quant Easing (plain printing of money to purchase gilts), and this is no quarantee to succeed.
QE = GBP devaluing.
In fact, yesterday, a BOE member mentioned that they might implement more QE if this round does not work as well as expected. By June we can see if the current round of QE is working.
If so, I see another sell off in GBPUSD and GBP crosses.
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