UK policy settings could sound death knell for Sterling

Sterling continues to resemble nothing more than a piece of flotsam, tossed to and fro by Eurozone debt crisis headlines. However, in the final event, the U.K. is vigorously pursuing that classic comibination of policies - tight fiscal and loose monetary - that is invariably seen as a death knell for currencies, and make no mistake, this is uber-tight fiscal and uber-loose monetary, in a country joyously free to let its currency devalue at will.

If you think the Eurozone crisis is going to be conclusively addressed and consigned to the back of the market's mind over the next couple of weeks, as a result of resolute, co-ordinated, decisive action from Euro nations, the European Central Bank, and the International Monetary Fund, with no subsequent back-sliding on austerity measures, or challenges in parliaments or constitutional courts, then maybe, just maybe, you can concoct an argument in favour of buying Cable.

If your medication isn't so strong as to make you think this way, then you may alternatively decide that the U.K.'s current policy settings, combined with the possibility that the markets correctly conclude that the U.S. dollar is the world's only true safe-haven in the short term, (let's worry about those massive unfunded Federal liabilities sometime later), then you may choose to spurn Cable, comme un chien rabid.

Another week, and another set of Bank of England minutes, this time showing unanimous agreement to buy more gilts. It's such a shame that Andrew Sentance has left the Monetary Policy Committee, and can only pursue his extraordinary, misguided campaign for tighter money from the newspaper pages; it would have been hilarious to see how the chap that writes the minutes so elegantly would have chosen to report what would by now look like the input of a visitor from Mars, were Sentance still on the committee.

Governor King's Christmas may be slightly tense, as just after that he needs inflation to fall off a cliff, as predicted. If it doesn't, then it'll be sterling that does so, as the market may quickly conclude there is a Faustian pact between government and the BOE to inflate the debt away.