As
anticipated over the two previous days; Bank of England governor Mervyn King in
yesterdays quarterly inflation report warned that growth in the UK will be weak
with the economy set to face “big challenges”.

As
anticipated over the two previous days; Bank of England governor Mervyn King in
yesterdays quarterly inflation report warned that growth in the UK will be weak
with the economy set to face “big challenges”.

The
key points from the report were that the BoE lowered their forecast for annual
growth from 2% to 1.7% as well commenting that they expect inflation to remain
above the 2% target until after 2016, 3 years longer than expected despite weak
growth. When questioned about monetary stimulus, Mervyn King replied that
further stimulus would be explored, if necessary. The overall bearish tone from
the Bank of England drove the pound lower against many of its peers, with
notable drops of over 1% intraday against the euro and the US dollar.

Data
released from the both the euro zone and the US came in positive with
industrial production in the euro zone rising to 0.7% and retail sales from the
US rising by 0.1%.

However
investors looked beyond the solid economic data and focused on the G20 summit
due to open in Moscow and Friday. At the summit, G20 officials will be
addressing the issue of the “currency wars” (the weakening of currencies via
government intervention) as well as monetary policy. The uncertainty over the
details of the discussions caused investors to seek refuge in to the safety of
the US dollar, causing it to gain against the majority of its peers.

GDP
data released this morning has showed that France, Germany, Italian have all
contracted in the fourth quarter of 2012 making the euro slightly weaker this
morning. With no data due for the release from the UK today, market
participants will be looking to the 5 year gilt sale this morning for a gauge
of investor confidence. As stated above, with investors set to be cautious
ahead of the outcome of the G20 summit tomorrow, we expect the US dollar to be
slightly stronger over the next two sessions.

Key Announcements:

10.00am
– EUR – Portugal GDP: Expected to rise to -2.9%.

10.00am
– EUR – Euro Zone GDP: Expected to contract further to -0.4%.

10.00am
– EUR – Greek Unemployment Rate: 26.8% in October.

13.30pm
– USD – Initial Jobless Claims: Expected to reduce to 360,000.