The brief sterling recovery was quickly snuffed out by yesterday’s CPI reading which showed the first fall in prices for over a year and hints towards further rate cuts by the MPC in the future. The market consensus was 4.8% against an actual of 4.5% with falls in the costs of fuel, transport and food the main contributors and we stick with our assertions that the Bank of England will cut rates by a full 1% in December bringing the rate to a halt at 1%.

Ben Bernanke and Hank Paulson endured another trip to Capitol Hill yesterday to discuss the progressive implementation of the TARP. The Toxic Asset Relief Program may not be used for the proposed bail-out of the three major automotive companies in the US (GM, Ford and Chrysler) and the remaining funds may instead be left to the Obama administration to allocate as they see fit. A lack of activity is precisely not what is needed at the moment and further wrangling over the car firm bail-out could spring dollar higher as a riskier atmosphere pervades.

The true extent of the inflows that the US dollar and dollar denominated assets have seen over the past 3 months was revealed yesterday. $143bn flowed into the US current account with $90bn moving into treasury debt implying the flight to quality while US investors are said to have sold $35bn of foreign assets and repatriated them.

News today will centre on the Bank of England Minutes release. These are of course the minutes of the meeting in which the MPC voted for a 1.5% cut in the bsae rate and it will make interesting reading to see the unanimity of the decision.

 Please feel free to contact me (jeremy.cook@worldfirst.com) if you have any questions or thoughts regarding these updates or if you are interested in a particular event in the calendar. If you would like to discuss your foreign exchange requirements, please contact our:

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Disclaimer: The above comments are only our views and should not be construed as advice. You should act using your own information and judgement. Although information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice.

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