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Sterling May Get ‘Smoked,’ HSBC Warns

Wednesday, 6 Mar 2013 | 6:19 AM ET
Doug Armand | Photographer's Choice | Getty Images

The decline of sterling has been much faster and more aggressive than expected and it is set to continue, David Bloom, global head of foreign exchange strategy at HSBC, told CNBC Wednesday, adding he was taken aback by the pace of the currency's slide.

"The kind of move we've seen this year has been more aggressive than we were looking for. We were looking for a pretty aggressive move by the end of the year, but it [was] only at the end of February and it happened. Currencies are faster and more vicious than you think possible," Bloom said.

Bloom added that sterling's days as a safe haven due to global economic uncertainty were over.

"If we get [quantitative easing] in the U.K. tomorrow and strong numbers in payrolls, sterling will get smoked in that environment. The bent is still to sell sterling at the moment. All the reasons you bought it last year — the euro zone is not breaking up, there's no fiscal cliff, and China has no hard landing. This year it doesn't work like that," Bloom said.

The U.K. economy contracted by 0.3 percent in the fourth quarter of 2012, but it was the downgrade of the U.K.'s coveted triple-A rating by Moody's last month which hit sentiment hardest.

(Read More: Britain Heads for Recession)

The Bank of England meets on Thursday and analysts expect the size of the bank's asset purchase program to be maintained, despite minutes from last month showing three of the nine committee members had voted in favor of expanding it by a further 25 billion pounds ($38 billion).

A surprise contraction in U.K. manufacturing in February raised fears of another recession with some even mooting the prospect of a rate cut by the Bank of England.

(Read More: UK Suffers Blow, Pound Seen Under New Pressure)

Anders Vestergard Fischer, analyst at Danske Bank, said in a note that sterling was now in a "perfect storm," adding that in the short-term there would be no let up in the downward pressure on the currency.

"We maintain our negative view. This [downward pressure] is coming from a combination of an expected weaker dollar, further [monetary policy committee] easing still on the table and a dismal growth outlook," he said.

"The [Monetary Policy Committee] has for months taken the stance that it would stand ready with more monetary easing should the outlook for the economy deteriorate. The question is whether the majority of the MPC who voted to hold on QE target at the February meeting will reach different conclusions this month," Fischer said in the note.

He added that there could also be a jump in yields if no further easing is announced as some market participants would be disappointed.

By CNBC's Shai Ahmed; Follow her on Twitter @shaicnbc

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