It promised to be an interesting FOMC meeting and Ben Bernanke did not disappoint. By cutting rates to the lowest level in 95 years the Fed is running out of the ‘traditional ammunition’, as put by President Elect Obama, with which we fight inflation. Further quantative easing will be needed in the future with a $200bln program to underpin student loan and credit card debt being floated as well as further support for the housing market.

Sterling leapt higher against the dollar as the news filtered through the wires hitting a month high against the USD of 1.5718 but with a move higher on EUR/USD to 1.4197, a 2 month high, GBP/EUR has slipped back into the 1.10s.

Dire news for sterling is just round the corner however as we await today’s UK unemployment figures which are set to show that the amount of people out of work in the 3 months to October has come close to the 2 million mark with further increases expected. The gains that sterling has made against the USD may well be gone by lunchtime today if the release is particularly bearish.

Yesterday was also the day for UK inflation figures. CPI was expected to fall to 3.9% but instead managed a perky 4.1%. In the letter Mervyn King wrote to the Chancellor explaining the reasons why he highlighted some good factors; petrol has on average fallen by 9.3p per litre in the past few months although food price inflation has increased with fruit and veg much higher than this time last year.

Inflation is set to fall dramatically over the course of 2009 however as commodity prices fall and the recession negates the ability of small businesses to pass on price increases. Deflationary fears are still around and we will look towards this morning’s MPC minutes.

Nobody predicted yesterday’s slight CPI fall from the UK and today’s Eurozone release is forecast at 2.1% however we believe that the ‘flash’ data released previously is broadly correct and are quite happy to sit with market consensus.

German CPI is also on the book’s today with a sharp fall expected in light of recent oil price dips.

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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