Sterling continued to weaken yesterday as fears over the effectiveness of the quantitative easing measures enacted by the Bank of England saw wholesale selling of the pound against most of its crosses.

The pound fell to a 6 week low against the dollar and a fresh 10 week low against the European single currency as the yield on short-dated UK government debt fell dramatically. This is on the back of concerns that the money that UK commercial banks have been lent is simply being hoarded and not being made available for borrowing operations.

Euro strengthened against the pound as German IFO business climate was released higher than consensus estimates with the single largest monthly increase since July 1996.

Equity markets were broadly lower as well as profit-taking dominated a quiet day. This allowed the US dollar to strengthen on haven flows; a move that was pegged back however as good news from the US housing market continued with New Home Sales rose to 9.6%.

The key piece of data on the calendar for today is the revision to US GDP. The previous figure was -1% with a consensus view of -1.4%. We are slightly more bearish on the US market than that given the falls in retail sales and consumer confidence that we have seen over the past few weeks. We would expect a -1.6% decline; a figure that will see the USD strengthen against most of its competitors as the move to safety is amplified.

Also on the schedule for today is GFK consumer confidence from Germany, which has risen to a 15 month high of 3.7, plus the typical Thursday Initial Jobless Claim figure.

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