Bishop John M Allin once said ‘being head of the Church is like putting together a jigsaw puzzle while riding on a roller coaster’. Now he knows how we feel; the sterling big dipper has climbed another slope with a crest to be reached at noon today with the release of December’s MPC interest rate release.

The market seems to have joined us in our assessment that the likely outcome will be a full 1% cut although some leading voices are calling for even more drastic measures. Willem Butter, a former MPC member and the only economist to publicly foresee the shock 1.5% cut last month, is quoted on the front page of this morning’s FT as looking for another similar sized cut with eventual policy hitting 0%.

We believe sterling could be in for a rough day as evidenced by the reaction to last night’s 1.5% cut by the RBNZ. While NZD lost ground against a broad basket of currencies it held its ground versus GBP even after Governor Bollard told the press that further rate cuts will be necessary; an alarming portent for sterling.

The Bank of England is of course not the only bank releasing monetary policy today; the ECB are set to cut rates this morning as well by a WF prediction of 75bps. The ECB are a lot more hawkish than their British counterparts and should they surprise the market by only cutting rates by 50bps we would expect the single currency to weaken against the dollar as the market is currently taking a very dim view of ‘policy inaction’.

More data is available from the US today with initial jobless claims a key measure after yesterday’s poor ADP figure leading into tomorrow’s Non-Farm payrolls. US factory orders are also due with a slump expected as their export market slumps over the strength of the greenback.

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:

Corporate Foreign Exchange Team on 020 7801 9050 or our Private Client Currency Exchange Team on 020 7801 9080.

To view any past or present currency blogs please click on the following link www.worldfirst.com/blog

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.

Any rates given are “interbank” i.e. for amounts of £5million and thus are not indicative of rates offered by World First for smaller amounts. E&OE. Definitions of jargon/market terms can be found in our Glossary of Foreign Exchange Terms.