Sterling was knocked down earlier today after BoE Governor King said that the bank is completely open mind on extension of the quantitative easing program. King believes the program is working and the risk of another depression has sharply diminished. Nevertheless, it will be a long, hard path back to a robust economy. Also, King reiterated that The depreciation of sterling should lead to a recovery in economic activity. Sterling is sharply lower against Euro and dollar after the comments.

In he Quarterly Inflation Report, BoE forecasts for GDP growth and inflation outlook. These estimates were made based on assumptions that the benchmark interest rate, currently at 0.5%, rises to market expectation of 1.1% in 3Q10 and 2.1% at 1Q11, as well as asset purchase program of 200B pound. BOE also anticipated inflation will rise sharply in the near-term and exceed the target level of 2% in 2012.

Also released from UK, unemployment rate was unchanged at 7.8% in September, better than expectation of a rise to 8.0%. Claimant count also rose less than expected by 12.9k in October.

Elsewhere, dollar dips to new low on dovish comments from Fed officials. Dollar Fed Fisher said that inflation is likely to remain subdued for some time and the near-zero interest rates are appropriate. He said growth was likely to be suboptimal into 2010 and 2011, with unemployment a vexing problem. San Francisco Fed Yellen said the prospect of a jobless recovery in a speech yesterday. Atlanta Fed Lockhart expects a relatively subdued growth pace this quarter and beyond.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.6634; (P) 1.6710; (R1) 1.6819; More

GBP/USD drops sharply today as consolidation from 1.6841 continues. Further fall to 4 hours 55 EMA (now at 1.6579) might be seen but still, downside is expected to be contained above 1.6465 support and bring another rise. Above 1.6481 will target 1.7043 medium term resistance next. However, break of 1.6465 will indicate that rise from 1.5706 has completed and will turn focus to 1.6261 support for confirmation.

In the bigger picture, break of 1.6740 resistance argues that fall from 1.7043 has completed at 1.5706 already. The three wave structure of such fall suggests that it's merely a correction in the larger rally from 1.3503. In other words, such medium term rally from 1.3503 is still in progress and another high above 1.7043 should be seen. On the downside, break of 1.6261 is needed to signal that rise from 1.5706 has completed and turn focus back to this support. Otherwise, outlook will remain bullish now.

GBP/USD