Sterling wobbles on mention of quantitative easing

Sterling didn't have a good day yesterday. The consumer price index (CPI) inflation remained stubbornly above its 1%-3% band at 3.1% in September and seems to rule out any increase in quantitative easing and relaxing of interest rates by the Bank of England which would only contribute to higher inflation.

But hold on. Monetary Policy Committee (MPC) member David Miles gave a speech that suggested otherwise. He said that juggling interest rates does not work as it was originally supposed to; "It is unlikely that monetary policy, which most of the time means variations in interest rate, is the most natural tool to use." He went on to say that QE "remains a potentially powerful tool and one that we might come to use [again]".

Whilst Mr Miles did not exactly advocate QE, his agreeable attitude to it puts him on the dovish side of the committee with Adam Posen; apparently the minutes from the meeting with show two votes for QE against the one vote of Andrew Sentance for higher interest rates.

The mere mention of QE seems to hurt Sterling as it was lower against pretty much everything in the foreign currency exchange market; one and half cents lower against the Euro and the commodity currencies (Aussie, Kiwi and Canadian dollars). It didn't do as badly against the US Dollar as the possibiliy of QE looms large in the US as well.

There was another wobble for Sterling at midnight when Nationwide published its consumer confidence index. It slumped by eight points to 53 in September. Half an hour later Westpac's index of Australian consumer confidence headed in the opposite direction, jumping from -5.0% to +3.3%. Oddly, Sterling managed to strengthen by a cent since the two figures were announced.

Today the UK labour market figures take centre stage.