Bank of England's MPC Committee meeting minutes

MPC Minutes show 3-way split on quantitative easing

The minutes from latest meeting of the Bank of England’s monetary policy committee have revealed a three way split over the size of the extension to the asset purchase programme. Seven members of the committee decided in favour of adding a further £25 billion to the quantitative easing budget. However, David Miles voted for an extra £40 billion to be added in order to provide greater insurance against the downside risks to growth and inflation. Conversely, Spencer Dale believed that the risks facing the UK economy were best balanced by maintaining the current level of asset purchase programme unchanged at £175 billion.

The news is inconclusive. With one person on either side of the QE decision, there is little fuel for those who believe the BoE may now have concluded its asset purchase scheme. Neither does it look any more likely that there will be an increase to the budget in February when the current £200 billion is due to run out.

The report also shows that, while the members unanimously voted to hold rates at 0.5%, the committee did discuss cutting the interest rate in order to ease monetary conditions further. Although they concluded that such a move would not have a significant impact, they agreed that it may yet be a useful tool for the future.

Currently the market has taken the pound lower, with investors picking up on dovish comments that reiterated the slow recovery in the level of economic activity. Despite data in the manufacturing and services sector showing above-expectation improvement, the BoE is clearly remaining cautious. There are still significant headwinds which could impede recovery.

Having dropped around 40 pips against the euro on the immediate release of the data, the pound has made a slight recovery and currently trading steadily against the US dollar.

Pound posted gains against a weaker kiwi yesterday as a stall in risk appetite weakened demand for the higher-risk currency

Having climbed strongly against the kiwi in the European session, the pound capped its gains, sliding back slightly to close the day 0.4% higher at 2.2554.

• The kiwi lost ground yesterday as risk appetite took a step back, easing demand for higher risk currencies.
  
• In the US, a government report showed US producer prices rose 0.3% in October, disappointing market expectations for a rise of 0.6% and dulling demand for the high-yielding kiwi.
  
• In addition, US core producer prices, those excluding food and energy, unexpectedly dropped by the most in three years, which supported a rise in the sterling/kiwi price.
  
• In trading this morning, the New Zealand dollar has recovered losses, bringing the price back below 2.24 as demand for the UK currency stumbles.

Demand for the aussie was subdued yesterday after the RBA struck a less hawkish tone than expected in their last meeting

The pound rose to a one-week high against the aussie, extending its gains as investors pared back bets that the RBA would raise their rates again this year.

• The Australian dollar suffered as investors scaled back speculation of an imminent rise in interest rates following the release of the minutes of the Reserve Bank of Australia's November meeting.
  
• The market had quickly priced in successive hikes after the RBA raised rates by 0.25% back in October, however, the minutes were less hawkish than many had expected, which gave investors the opportunity to cash profits, weakening the aussie.
  
• In addition, investor risk appetite did showe signs of fading yesterday as a rally in the US dollar helped pull equity markets back from 2009 highs and commodity prices flattened.
  
• In trading this morning, sterling has slipped closer to 1.80 as investors remain cautious of the UK currency ahead of important BoE policy information to be released at 09:30.

The euro was on the back foot in trading yesterday as investors bought back into the US dollar

The euro extended losses yesterday, dipping sharply to a two-week low of 1.4811 against the US dollar as investors turned more risk adverse.

• A subdued global equity market performance relieved some pressure on the dollar, although US stocks did moved slightly higher late in the New York session.
  
• Traders said the dollar's rise also reflected a delayed reaction to comments from Mr Bernanke, who said that the central bank was "attentive" to the implications of changes in the value of the dollar.
  
• Though the tone of his comments were not alarming, in just mentioning the currency it shows that the Fed is aware of market concerns and acknowledged the need to address the issue.
  
• ECB President Jean-Claude Trichet helped to extend the euro's losses following an interview with French newspaper Le Monde, in which he welcomed Bernanke's remarks and said the euro was never intended to be a reserve currency.
  
• The dollar took little notice from a mix of data showing lower inflation pressures from wholesalers, smaller gains in factory output and an improvement in foreign capital inflows to the US.

Waning risk appetite in the market enabled the dollar to pull back early losses against the pound

Having enjoyed a slight rally in early trading, demand for the pound eased enabling the US dollar to recover with the price closing the day little changed at 1.6810.

• Sterling edged back up towards a three-month high in European trading hours after a key reading of annual UK inflation accelerated for the first time in eight months in October .
  
• The pound nudged up to an intraday high of $1.6872, a shade below its highest point since August this year, after the annual consumer price inflation rate hit 1.5%, in line with economists' expectations.
  
• The figures fuelled the view that the Bank of England might be coming close to the end of its quantitative easing programme after announcing a £25bn extension to its assets purchase scheme at its policy meeting earlier this month.
  
• However, the US dollar recovered its losses as risk appetite wavered in the wake of subdued global equities. Analysts also noted that the dollar's gains were a result of a delayed reaction to rare comments on the depreciation of the US currency from Ben Bernanke.
  
• In trading this morning, the pound is marginally down as investors await the release of the minutes from the BoE's latest policy meeting at 09:30.

Strong UK inflation data and a weak single currency enabled the pound to push higher yesterday

The pound continued to climb against the single currency, pushing its two-month high up to 1.1319 in the wake of positive UK inflation data.

• Sterling opened the day on a positive note as investors digested the words of BoE policymaker Andrew Sentence, who said that Britain is returning to growth but risks stoking inflation if it keeps stimulus measures in place for too long.
  
• His comments supported claims that the last installment of £25billion to the asset purchase scheme would be the final expansion.
  
• Sterling extended its gains following positive UK inflation data, which came in higher-than-expected in October.
  
• UK consumer price inflation rose 0.2% in October, exceeding forecasts for a 0.1% rise. This took the annual rise in CPI to 1.5%, up from 1.1% in September.
  
• In the euro zone, data revealed a positive trade balance for September. The figure of 6.8 billion represents a significant improvement after August's disappointing deficit, and shows a clear resilience in the export market.
  
• However, the data had little impact on the euro, which suffered after ECB Trichet welcomed Bernanke's remarks on a strong dollar.