DJ Forex Focus

These are dark days for sterling bulls.

As the market absorbs the idea that U.K. interest rates are going to stay super-low super-long, the currency is fast becoming possibly the least popular in the developed world.

And as if sterling's frazzled supporters aren't feeling the heat enough already, this week could be grim.

The vultures are circling around the big event Wednesday. That's when the Bank of England will release the minutes of the September meeting that led its monetary policy committee to keep interest rates on hold and maintain its level of asset purchases.

Any hint that some MPC members would have preferred to take a more dovish stance could offer all the ammunition that sterling bears need to shove the currency sharply lower.

The once outlandish idea that the Bank of England could cut the rate it pays on commercial bank deposits in an effort to kickstart lending is swiftly gathering clout.

Already, economists are lining up to downgrade their sterling views. Analysts at BNP Paribas -no sterling fans at the best of times -have slashed their forecasts. They now expect to see the euro trading at or even above parity with the pound by the start of next year, marking a chunky 10% climb against struggling sterling.

Brace for the pound to trade towards $1.45 against the dollar by the middle of 2010, the bank warns.

Meanwhile, Steve Barrow at Standard Bank accepts that "$1.80-plus could be beyond the pound this year." He has scrapped his view that sterling is heading towards $1.74 within six months. Now he sees $1.63. The euro looks to be heading for GBP0.95, he now says - a 10% upgrade to his earlier view.

It's not even just the interest rate outlook that's hampering the pound, Barrow said. Wobbly bank stocks, which are often highly correlated with sterling, are not helping either.

Currency speculators are already acting as enthusiastic sterling floggers, according to the latest positioning data from the Commodity Futures Trading Commission late last week. That report showed that even as speculators were clobbering the dollar against most other major currencies last week, they were still buying it against the pound.

All in all, sentiment towards the pound right now is at its lowest point in some time.

So perhaps the real danger here is that the new consensus is getting it wrong.

For one thing, the prospect of a cut in the Bank of England's deposit rate is probably less likely, and less damaging, than the market assumes, says Paul Robinson, a sterling specialist at Barclays Capital in London. After all, a deposit rate cut "would reduce the likelihood of an increase in asset purchases," Robinson said.

If anything, the minutes due Wednesday could prove to be sterling supportive, he added.

But he's not exactly betting the farm on it. "We do not hold this view with very strong conviction," he said in a note to clients. "We do not think that now is a good time to (buy sterling)," he added.

Early Tuesday, the pound was recovering some of the ground it has lost over recent days, trading at $1.6279 against the dollar, from $1.6206 late in New York Monday, according to EBS.

Similarly, the euro had dipped to GBP0.9046 from around GBP0.9060.

The dollar was under pressure once again, with the euro trading at $1.4732 from $1.4676 and at Y91.43 from Y92.05. The euro was at Y134.69 from Y135.09. The dollar was at CHF1.0278 from CHF1.0327.