A weak aussie made hesitant gains against the pound yesterday following a dovish report from the BoE

Sterling dropped back half a cent in trading yesterday to hover marginally above 1.80 against the aussie as investors picked up on notes from the latest BoE policy meeting.

• The minutes reiterated the possibility of further reducing the base interest rate in order to ease credit conditions, a policy that many thought was no longer in question.
  
• However, the pound did not drop as sharply as it did elsewhere with demand for the aussie also under pressure as US equities traded in the red, dulling risk appetite.
  
• Analysts also noted that the investors remained cautious towards the Australian dollar after the RBA expressed hesitation over a further rate rise this year.
  
• The pound has recouped its losses this morning, climbing back toward 1.89. Analysts have cited the fact that investors’ are looking to lock in profits as year-end approaches following a long rally which carried the aussie to a 15-month high against the US dollar.

Euro made gains against the dollar yesterday but has relinquished them this morning as investors pare back "riskier" positions

The single currency traded strongly against the dollar, recovering losses incurred on Tuesday, to close the day back up near 1.50 at 1.4963.

• The dollar slipped back as the President of the Federal Reserve Bank of St. Louis, James Bullard, said past experience indicates policy makers may not start to raise interest rates until early 2012.
  
• The euro pared some gains after data showed tame underlying US inflation data and a decline in housing starts lasts month, suggesting a US recovery will be a slow one.
  
• US housing starts tumbled 10.6% in October to their lowest level in seven months, which did little to enhance the outlook for the economy and lent some support to the dollar.
  
• Analysts also noted that traders were taking profits yesterday in the wake of the greenback's biggest rise in three weeks, with fresh data doing little to alter the view that US interest rates will remain at record lows well into 2010.
  
• In trading this morning, the euro has once again relinquished its gains, currently trading down 0.6%, as traders take profits from carry trade currencies and pare back “risk” positions.

Sterling was under pressure yesterday as the minutes revealed indecision over the extension to QE

Sterling was under pressure in trading yesterday, losing half a cent to the dollar as a report revealed a split vote over the extension of quantitative easing among the MPC members.

• Sterling was pushed to session lows after the minutes showed a three-way split of the asset purchase scheme: one member had voted for an increase of £40 billion, where as one was in favour of no extension at all. The other seven all agreed upon the £25 billion that was actually implemented.
  
• Analysts noted that the inclusive nature of the minutes suggested that further monetary easing was still on the table, which weakened sterling.
  
• In addition, the committee discussed the merits of cutting the base interest rate from the current 0.5%. Although they concluded that it was not currently necessary, the mention of it dulled demand for the pound.
  
• The dollar extended gains after weak US housing data reduced appetite for risk. The Commerce Department reported that US housing starts dropped last month to an annual rate of 529,000, from a revised 592,000 in September.
  
• The pound has lost further ground this morning, currently down a further cent, as softer equities during the US and Asian sessions dampen risk appetite.

Bank of England minutes proved tough for sterling, which lost considerable ground to the euro

The pound depreciated for the first time in five days against the euro, losing 1.0% from its intra-day high at 1.1311 following the release of the minutes from the latest BoE policy meeting.

• Sterling lost ground after the Bank of England minutes revealed a three-way split in the decision to increase asset purchases by £25 billion at its meeting earlier this month.
  
• Among the nine Monetary Policy Committee members, one, David Miles, called for a £40 billion increase, while BoE chief economist Spencer Dale, favoured no increase at all.
  
• Analysts said the minutes left the question of whether the central bank will increase quantitative easing beyond its current £200 billion target largely unanswered. The door was open to more although such a prospect looked unlikely.
  
• Sterling also came under pressure after a survey showed that UK factory orders fell this month at their slowest pace since December, although export demand was at its strongest since April.
  
• Meanwhile, investors will be keeping an eye on any positive prospects for sterling from merger & acquisition talks as a bidding war mounts for UK confectioner Cadbury Plc.
  
• The pound may also find some support today should UK retail sales data, released at 09:30, follow market expectations and reveal a month-on-month rise.

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.