Sterling finished a volatile overnight session modestly higher, as Germany voted to extend the powers of the EFSF plus US economic data surprised to upside, especially the stronger-than-expected jobless claims figure.
Sterling traded in a wide range, hitting a high of 1.5716 during European trade following talk from a Swiss National Bank official that some SNB reserves might be diversified into sterling in about a year’s time. From there, it was mainly downhill for risk currencies, with cable trading to a low of 1.5543 as equity markets came under pressure for most of the US session before a late bounce. GBP/USD closed the session at 1.5627.
In a further hint that the UK may be set for more quantitative easing measures, BoE Chief Economist Spencer Dale said the global economic slowdown looks more persistent now than it has done previously. He said that the UK is currently close to an inflation peak, and that he expects inflationary pressure to subside sharply next year. Mr Dale said he is pretty sure QE would work again as a policy tool if the BoE decided to do more. Mr Dale, like the majority of the MPC, is moving closer towards voting for more easing, a policy shift which is yet to be priced into sterling in our view. Cable is slightly weaker in Asian trade, last at 1.5595.