The US dollar fell sharply yesterday as the Federal Reserve’s Federal Open Market Committee unexpectedly followed the UK’s lead down the path of ‘quantative easing’. They of course left interest rates as they were.

The plan is to buy up $300bn of long-dated Treasury bills so as to provide liquidity into the arid market landscape. This shocked most, if not all, investors as most believed that they would wait and see as to how previous policies were performing. If we are in an ‘economic war’, as Warren Buffet said recently, then Ben Bernanke has just launched a blitzkrieg.

Dollar slumped hard against all currencies including sterling which has broken through the top of its recent trading range and into the 1.42s. EUR/USD moved into the 1.33s and USD/JPY fell back to the 98s. Dollar was already on the back foot when the announcement was made as US CPI came out unexpectedly higher and allowed some flow into risky assets; both the Dow Jones and the NASDAQ were higher last night and the FTSE will definitely be up at the open.

Sterling was banged around quite a bit yesterday and broke through the bottom of its recent trading range after UK unemployment figures showed a pretty awful picture. The Claimant Count, the amount of people on the dole, rose by 138,400 against a consensus view of 84,800. The unemployment rate held steady at 6.5% but I’m siding with the most bearish of commentators and believe that we will see 10% unemployment in the UK before these problems are over.

The Bank of England Minutes had no real effect on FX markets as all 9 members voted unanimously for the cut to 0.5% and also to provide £75bn for quantative easing.

Data today is fairly light. It is Thursday so naturally there will be an Initial Jobless Claims release which alongside the Philly Fed Manufacturing figure could see this sterling rally against dollar over by the early afternoon.