BoE Minutes Reveal Three Way Split for the Third Consecutive Month, GDP Rises Less Than Expected

Fundamental Headlines

• South Korea Prepares New Drills – Wall Street Journal

• Japan Sees End to Economic Lull – Wall Street Journal

• China Extends Help to Tackle Euro Crisis – Financial Times

• U.S. Stocks Erasing Loss Since Lehman Failure Fuels 2011 Bulls – Bloomberg

• U.K. Economy Slows More Than Estimated as BoE Splits – Bloomberg

GBPUSD: The Bank of England minutes for the month of December showed a three way split for the third consecutive month as policy maker Andrew Sentance continued to push for a rate hike amid high consumer prices, while Adam Posen called for additional quantitative easing. In the coming months, the split amongst committee members is expected to widen due to the uncertain outlook. With consumer prices expected to push higher on the back of the increase in the value added tax (VAT) measures from 17.5 percent to 20.0 percent, while unemployment will likely push high due to slack in the economy, monetary policy decision-making will become increasingly difficult. Meanwhile, the economic docket in the U.K. showed that the final economic activity report in the third quarter rose 0.7 percent amid economists’ expectations of 0.8 percent, while the annualized rate rose 2.7 percent. The reading does not bode well for the region as growth is predicted to slow in 2011 as the government implements the most violent spending cuts since the Second World War during a time period in which households face tight credit conditions, slow wage growth, and falling house prices. In the currency markets, the GBPUSD has extended its three day decline and now looks poised to test the 200-day moving average in the near term as fundamental and technical developments continue to point to losses in the pair. Market participants will now shift their focus to the U.S. GDP and existing home sales reports due out at 13:30 and 15:00 GMT respectively.