Currencies Direct Reviews QE Moves and US Non-farm Payroll

6, November 2009

The Monetary Policy Committee voted as expected to leave interest rates unchanged at 0.5%. However Quantitative Easing was expanded by £25 billion to take the programme to £200 billion of money created to buy debt. This was less than many expected and in the accompanying statement the Bank of England were slightly more upbeat on a pick up in economic activity and the market has taken the perception that we will now see at the very least a pause in the programme.

This changes the perception towards exit strategies and to a more hawkish tone…this has given sterling a boost even in the light of the decision to expand QE. The market is looking forward and the prospect of the next quarter showing the UK economy returning to growth and the halting of further QE. The markets however remain very fickle and this sentiment could change very quickly.

Yesterday UK manufacturing rose 1.7% above expectations and Industrial Production climbed, again supportive of the sentiment that the worst is behind us.

Today we have the Non-farm payroll report from the US. This is a huge number for the markets and the general assumption is that if the number is above expectations then the USD could weaken further and vice versa. Expect volatility between 12-2 pm on the back of this. EUR/USD is looking to push back over the 1.50 level and GBP/USD is looking to break beyond 1.66. The recent Euro strength against the USD has tempered sterling gains against the euro.

Report by Phil McHugh

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Compiled by Tom Nadir.

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