Sterling gets a thrashing amid fears of further QE

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Unsurprisingly, considering the impact a default would have on the global financial markets, Greece's debt issues continues to dominate investor sentiment. Eurozone finance ministers, who are meeting today and tomorrow, had hoped to come up with a final settlement of Greece's €78 billion debt invoice; that now seems unlikely given Greek parliamentary approval of the extra austerity measures are not due until next week.

That does not mean today's meeting will be a waste of time as it will give ministers the chance to figure out what to do if the austerity measures aren't voted through in Athens.

Sterling had an awful day as a result of the Bank of England's Monetary Policy Committee minutes. As could have been expected, 7 members of the MPC voted for interest rates to remain on hold while 2 voted for an increase. What put the skids on Sterling was the attention paid by the committee to the possibility of another round of quantitative easing. Whilst there was only one vote in favour of such action, that vote led investors to believe the MPC is giving serious consideration to another money injection.

It meant that Sterling lost ground against more-or-less every single currency in the world. Despite the Euro's issue, Sterling lost over a cent to the Euro, nearly two cents against the US Dollar and an average of 2.2 cents against the Australian, New Zealand and Canadian Dollars.

It is a different story in the US, at least as far as the Federal Open Market Committee's statement and the Fed chairman's press conference showed yesterday. The FOMC is less worried about inflation, believing it will "subside to levels at or below those consistent with the Committee's mandate to maintain price stability and full employment". They don't sound too worried about the economy either: "the slower pace of the recovery reflects factors that are likely to be temporary". In central bank language, "temporary" implies optimism and suggests the US economy might not require a third round of quantitative easing. Despite a downgrade for economic growth this year, from 3.1-3.3% to 2.7-2.9%, investors seemed to be more taken by the abandonment of QE as a tool for growth and the US Dollar made broad gains.

Sterling is unlikely to suffer a repeat of yesterday's thrashing but CBI retail sales and BBA mortgages would have to exceed market expectations by some distance to provoke a renaissance. Listen out for comments from EU finance ministers and central bankers; any harmony might improve market confidence and help the Euro. Any discord would provide more proof that they are just making it up as they go along.