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The British Pound consolidated losses below 1.60 to the US Dollar, the lowest level in over two months, as the Bank of England prepared to release the minutes from December’s monetary policy meeting.

Key Overnight Developments

• New Zealand Gross Domestic Product Disappoints in Third Quarter
• Euro, British Pound Consolidate in Narrow Ranges Through Asian Trade

Critical Levels



The Euro and the British Pound consolidated in narrow ranges through Asian trading hours as Japanese markets closed for the Emperor’s Birthday holiday and overall liquidity thinned out ahead of the Christmas holiday that will shut down most major exchanges later in the week. We remain short EURUSD at 1.4881 and short GBPUSD at 1.6648.

Asia Session Highlights



New Zealand Gross Domestic Product figures disappointed, revealing the economy grew 0.2% in the third quarter. Economists had predicted a 0.4% expansion ahead of the release. Looking at the report’s details, consumption growth accelerated to add 0.7% after gaining 0.4% in the second quarter, but the pace of contraction in business investment accelerated to -0.9% versus -0.4% in the three months to June. The external sector also yielded lackluster results as exports failed to grow for the first time this year. The New Zealand Dollar declined to test a low of 0.6973 against its US counterpart after the data crossed the wires, but any significant follow-through seems unlikely considering the market’s yield expectations look virtually unchanged in the aftermath of the announcement. Indeed, a Credit Suisse gauge of the priced-in interest rate outlook has called for borrowing costs to rise 203 basis points over the next 12 months since last Friday.


Euro Session: What to Expect



The publication of minutes from December’s Bank of England policy meeting may prove of little interest with traders widely expecting the central bank to remain in wait-and-see mode until it completes and assess the impact of November’s 25 billion pound expansion of its quantitative easing (QE) program in February. Recent inflation figures have supported projections of a near-term upswing made in the latest quarterly inflation report, so there seems little reason to change gears for the time being. Still, traders will keep an eye out for any discussions about cutting the interest rate it pays on bank deposits as an additional avenue to boost lending, a proposal that surfaced in November’s minutes. An article from the Daily Mail crediting "authoritative sources" as saying that the BOE’s rate-setting committee is leaning towards expanding QE by another 25 billion at some point in 2010 may also contribute to volatility surrounding the release.