Stock markets continued its bullish run overnight as Investors reacted to the FOMC decision to inject a further £600 billion in additional stimulus. Strong price movement was seen on the FTSE 100 index (Futures) before the opening bell signalling further gains during the European trading session. The safetly linked USD saw strong weakness overnight with the current GBP/USD level close to a year high.

Falling on the back of the Fed’s announcement that it is to embark on a fresh round of quantitative easing (QE), the dollar has started the day near 10-month lows versus the euro and a 28-year low against the Australian dollar. It has also edged back towards its recent record low versus the yen, with markets cautious ahead of the Bank of Japan’s own policy meeting. This was brought forward from mid November to allow it to act quickly if the Fed surprised the market and triggered a new wave of dollar selling. The Fed’s decision to buy $600 billion more in Treasuries by the middle of next year is pretty much in line with expectations but the increase to money supply is still likely to weigh on the USD going forward.

Looking ahead at the data due out from the UK the Bank of England meet at midday today. Expectations are for no official changes to interest rates and with regards to the assett purchase program however the policy statement to follow from Mervyn King will be closely watched and will no doubt be making decisions based on the quarterly inflation report which will no doubt include details with regards to the recent spending cuts presented by the treasury. Whilst the growth rate remains above 3%, it has edged lower following the initial first quarter peak we saw. This however will likely weigh on the Bank of Englands decision with regards to its stance on further quantitive easing in the coming months. Any indication that the measures will start this side of 2011 will likely cause a zsell with with the Pound.

Elsewhere we have the policy annoucnement from the ECB – European Central bank which may prove to be a non event as both interest rates and their view on growth is unlikely to change in the short/medium term. Overall the Euro is performing well, fundamental data out of Europe is positive and coupled with the fact the Pound is weak at present the market presents a good opportunity for Euro sellers.

Today presents key event risk and plenty of volatility, buyers and sellers should remain cautious but equally take advantage of the current price levels in the market. The GBP/USD trades close to a 2010 high, whilst the EUR/GBP and AUD/GBP currently trade at one of the lowest levels of the year also. Sterling sellers going forward should consider STOP triggers to minimise losses to increased levels of volatility this afternoon. If you would like to discuss your personal requirement do not hesitate to give me a call on my direct line +0044 1736 335264.

Tom Trevorrow

Senior Trader

Tel: +0044 1736 335264

Email: tom.trevorrow@torfx.com