Good Morning. As outlined in Fridays post, the pound made some good gains at the end of last week, recovering some of the ground lost over the previous 2 weeks. This was due to BoE comments that Quantitative Easing may be working. Before we look at rates and today's view on the market, we'll look at our Director of Foreign Exchange speaking on CNBC recently. If the video does not play, you can view directly on YouTube here
Despite the gains, the UK is still struggling to recover. It is "still premature" to talk about the beginnings of a recovery despite growing optimism, according to the influential Ernst & Young Item Club. It predicted some growth in the second half of 2009 but said the economy would struggle to achieve 1% growth in 2010. This will likely keep the pound weak.
Bank of England and Quantitative Easing The reason for the gains last week were one of the MPC members saying the QE measures were working, and this meant the view was there may be no further measures, and therefore the pound recovered. Sterling slipped this morning however against the euro and dollar after a Bank of England policymaker said the central bank should continue its quantitative easing programme because the financial system has yet to fully recover.
Adam Posen's comments to the UK's Sunday Times eclipsed sterling-friendly house price data from property website Rightmove, which showed asking prices for homes in England and Wales up on an annual basis for the first in more than a year in October.
Market participants said Posen's relatively dovish remarks contrasted with those of fellow MPC voting member Paul Fisher last week, which were interpreted as a signal the Bank might be considering drawing its QE programme to a close soon.
This weeks data The main news that caused the pounds rise last week was Paul Fisher's comments from the BoE that QE was working. Today we see a different member Adam Posen say it's not working, and more is needed. So, conflicting views on what will happen. On Wednesday this week we see the full minutes of the recent BoE meeting, where we can see differences of opinion in more detail. This will be key to this weeks Sterling movements. We also have Producer Prices and Retail Sales for the UK.
Elsewhere, there is an Interest Rate decision for Canada, where rates will likely be left at the low of 0.25%. There are several speechs by the US Federal Reserve, where they give views on the US economic recovery, and these comments can influence the value of USD.
Monday UK - Rightmove House Prices US - Fed Speech
Tuesday Ger - Producer Price Index UK - Producer Price Index US - Housing Starts Can - Interest Rate Decision US - Consumer Confidence
Wednesday UK - BoE Minutes US - Mortgage Applications US - Feds Beige Book
Thursday UK - Retail Sales US - Jobless Claims Can - Retail Sales US - House Price Index
Friday Ger - Business Climate EU - Industrial New Orders US - Fed Speech US - Home Sales
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