STERLING

GBP traded lower yesterday, helped by the higher CPI. Kings speech last night provided reasons for the reintroduction of QE, highlighting concerns of a stalling economy and CPI falling below the 2% target without it. We suspect today's MPC minutes will be relatively similar, and will likely reveal a unanimous vote for QE with a possible split over the size of QE. There will also likely be some discussion on the potential of further QE. While a dovish tone is likely to be largely priced in, there will probably still be some downward pressure on GBP.

USD

USD was unchanged yesterday after edging higher earlier on in the day. Market sentiment had been soft in the morning but some better than expected earning numbers saw S&P rally, and USD drift lower. Market appetite will continue to react to headlines from Europe and various earning numbers expected today. We think the USD index will remain range bound. Yesterday's US PPI was much stronger than expected at 6.9% y/y vs consensus of 6.4%, we could therefore see some upside risk to CPI today, which would mean less likelihood of QE3 for now.

EUR

Reports of France and Germany agreeing to leverage EFSF to EUR 2trn and a rally in stocks saw EUR/USD rebound yesterday. These reports have since been denied. Markets will continue to react to headlines which could give us an indication of what to expect from the EU summit. The outcome of the EU summit remains uncertain, and as indicated by Merkel's comments, the EU summit will be an important but not final step in solving the crisis, and so a resolution to the crisis seems unlikely for now. Today, with more earnings numbers expected from the US, we could see some support for risk sentiment. We expect EUR/USD to remain within a 1.36-1.39 range today.

NOK

NOK TWI is up 2.4% this month, mainly due to the risk revival earlier this month and partly helped by the finance minister indicating the potential for higher Norwegian rates. However, Norges bank will likely keep rates on hold at today's meeting. Norges bank announced a low for longer stance at its September meeting on the view of low inflation, weak output, poor employment prospects and stresses from the European debt crisis. While we have seen better employment data and inflation has risen, concerns surrounding the debt crisis still remain.

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