Sterling jumped to its highest levels in 3 weeks after MPC member Fisher lent the QE policy in the UK some soothing words.

The pound put on 1.8% against the euro and dollar as Fisher commented that the asset purchase program was “having the scale and speed of impact that we would have hoped for when we started in March”. This coupled with the comments from Deputy Governor Charlie Bean that a reversal of QE would be needed in the future if the MPC was to get near their 2% inflation target has shown the bank in a new light.

Whether this rally continues or fizzles out over the next few days will remain to be seen but watch 1.10 as an important level. It is probably fairly well guarded by stop orders and option barriers and sterling bulls may not have the stomach for that sort of fight as yet.

It wouldn’t be sterling without a contrarian view however with EX-FSA Chief Sir Howard Davies quoted in The Telegraph as saying “The British people are living in a fool’s paradise and have yet to understand the gravity of the economic crisis”

The euro continued its march against the USD yesterday pushing just shy of the key psychological level of 1.50 although Trichet may have tried to quell the recent rally in his afternoon press conference. He commented on recent dollar weakness and the rebalancing of reserves by stating that the euro was not designed to be a global currency. Euro weakened as a result but further calls will be needed to prise it away from a run at 1.50 again.

Data today is dollar centric with TIC data at 14.00, Industrial Production at 14.15 and  Michigan Consumer Confidence at 15.00.

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