Sterling moved higher yesterday as news from the UK continued to paint a picture of an improving landscape for the services sector in particular. PMI for the services industry rose to 53.4 versus an expected 51.8 with sterling jumping by 0.8% against both the USD and EUR.

Equity markets tripped lower as investors continued to take profit on trades that have made positive moves over the past few weeks. Movement on both equity and currency markets were depressed however as market participants waited on the sidelines for the data onslaught we have today.

We believe the Bank of England will hold rates at 0.5% with QE held at the £125bn. The minutes and next week’s Quarterly Inflation report will however show that the Bank will be ready to ease more should the economy not recover as expected.

Similar is expected from the ECB slightly later in the day and such our focus should be on the press conference afterwards. Trichet will continue his stance that current rates remain appropriate although given the recent uptick in data from the EU the speech may have a more positive slant than before.

All in all I expect the data today to be sterling positive; we made 5 trips above 1.70 against the USD yesterday and have since been pressurized lower. A good Bank of England report should see us move over with some momentum.

I will be writing a special report on QE, The Bank of England and the potential for GBP in the immediate aftermath of the decision plus with a look forward to the Inflation Report on Wednesday.

Latest Exchange Rates At Time Of Writing

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