The Bank of England decision to keep interest rates at a record low of
0.5% and to hold it quantitative easing (QE) stock at £375bn caused an
immediate reaction in the currency markets, with sterling gaining across the
board, shortly after the news was announced at noon yesterday. The decision,
along with hints made by Sir Mervyn King, is likely to fuel expectations that
the impact of QE is perhaps reaching its limit.

The Bank of England decision to keep interest rates at a record low of
0.5% and to hold it quantitative easing (QE) stock at £375bn caused an
immediate reaction in the currency markets, with sterling gaining across the
board, shortly after the news was announced at noon yesterday. The decision,
along with hints made by Sir Mervyn King, is likely to fuel expectations that
the impact of QE is perhaps reaching its limit.

The European Central Bank also held its interest rate at 0.75%
yesterday, whilst it assesses the extent of the Euro zone’s economic downturn. Mario
Draghi offered little cause for cheer at his press conference, but seemed to
calm markets by reaffirming the ECB’s stance that they are ready to buy bonds
of debt-strained governments once they had signed up to European bailout
programme.

We could see the euro come under pressure following news this morning
that the European Union will delay its decision to give Greece its next round
of aid, thus increasing a level of market uncertainty.

Speculation that U.S. lawmakers will struggle to avert the looming
fiscal cliff is also adding to market uncertainty, thus supporting the safe
haven currencies such as the US dollar.

Today’s Key Announcements:

7.00am – EUR – German CPI Data:
Came in as expected at 2%

9.30am – UK – Total Trade Balance:
Better than expected at -£3.972bn against -$4.900bn

14.55pm – USA – Reuters/Michigan
Consumer Sentiment Index: Expected to be at 83