·         Plan to oust Brown hurts sterling

·         Dollar weakens as Fed talk of more stimulus

·         Bank of England expected to keep rates at 0.5% and QE unchanged

·         Email research@worldfirst.com for an invite to this afternoon’s Bank of England and ECB webinar!

Further ructions in the political sphere yesterday gave the pound a bit of a hiding in trading.

The news that a secret ballot on Gordon Brown’s leadership was being sought really hurt us yesterday. It further weakens the UK’s standing in the eyes of the financial community and through that they have punished the pound. Rumours are swirling through the market that we as a country have no unified plan to deal with the UK’s dire fiscal position and this further shows that the powers that be are in disarray. At the time when the pound needed cohesion from its government, it got confusion.

If we see further petty in-fighting then the pound will continue to weaken. As we have said over the past few months, the worst thing for currencies is not negativity but uncertainty. This also adds weight to the PIMCO argument; that UK sovereign debt should be dropped as it is too much of a risk to a portfolio.

The services PMI figure that we had hoped would be better than consensus and buck up the pound instead arrived as expected. This gave GBP a minor jolt higher but this was not to last.

The dollar has slipped slightly from its overnight position of strength after the FOMC minutes showed that they had discussed extending stimulus in the US should the economy not get its footing back quick enough. Hopes had been that they would talk about ‘exit strategies’; we could see similar from the Bank of England in the Inflation Report on February 3^rd.

Commodity currencies once again had the run of the table yesterday; Australian retails sales helping the dollar higher as they came out at 1.4% against a 0.4% consensus. We are still happy with our beliefs that we will see parity on AUD/USD within 6 months.

It is of course Bank of England Thursday and we expect no change in its quantitative easing policy nor in interest rates. For further thoughts on this join our webinar this afternoon; email research@worldfirst..com should you need an invite.

You can also follow us live on Twitter at http://twitter.com/World_First