Yesterday we saw the pound claw back some its previous days
decline although in the morning we did see the pound trade at a one month low
against the euro.

As widely expected, the Bank of England’s Monetary Policy
Committee (MPC) voted in favour of keeping interest rates at 0.5%. The Bank of
England has said it will not increase interest rates until the unemployment
rate falls from its current level of 7.7% to 7%. The MPC has also kept QE
unchanged at £375bn. Although widely expected, the pound managed to strengthen
on the back of these decisions.

Yesterday we saw the pound claw back some its previous days
decline although in the morning we did see the pound trade at a one month low
against the euro.

As widely expected, the Bank of England’s Monetary Policy
Committee (MPC) voted in favour of keeping interest rates at 0.5%. The Bank of
England has said it will not increase interest rates until the unemployment
rate falls from its current level of 7.7% to 7%. The MPC has also kept QE
unchanged at £375bn. Although widely expected, the pound managed to strengthen
on the back of these decisions.

In the US there was growing optimism that a deal will be struck
to avert a U.S. debt default. Republicans in the House of Representatives have
said will they will propose legislation for a short term debt limit increase to
avoid the debt default. House Speaker John Boehner said a deal to agree a short
term increase is reliant on the Democrats agreeing to start negotiations on
fiscal issues.

On the back of these comments, the Dow Jones moved up 1.57%,
the NASDAQ up 1.95%, the FTSE up 1.46%. This renewed investor optimism after
stock markets had hit multi month lows over fears of the debt default.

On the data front from the US, initial jobless claims rose
to 374,000, which is 64,000 more than was expected, reducing chances of
tapering of the US monetary policy programme.

European Central Bank President Mario Draghi said yesterday
that he will keep interest rates low as it allows for cuts in borrowing costs
if market volatility resumes. The ECB are looking to prevent volatility in the borrowing
rates from derailing euro zone economic recovery that Draghi has labelled
subdued, uneven and fragile.

But despite his pessimistic viewpoint we are still seeing a
strong demand for the euro causing the GBPEUR rate to drop below its up trending
price channel that has been in place since August. So from a technical perspective,
this could well signal a further fall in the GBPEUR rate.

This morning German inflation figures fell in line with
expectations coming in at 1.6%. The rest of the day looks fairly subdued with
only Canadian unemployment figures and US consumer sentiment figures up for
release.

Key Announcements:

13.30pm – CAD – Unemployment Rate (Sep): Expected to remain
at 7.1%.

14.55pm – USD – Reuters/Michigan Consumer Sentiment Index
(Oct) : Expected to fall to 76.