Sterling tumbles sharply across the board after BoE surprised the markets by expanding its quantitative easing program after the meeting today. On the other hand, Euro is steady after ECB left rates unchanged at 1% while Trichet said that current interest rates are appropriate. Dollar is lifted mildly on the back of better than expected initial jobless claims unexpected dropped to 550k. Japan yen is broadly lower on anticipation of higher open in US stocks and yen crosses will probably extend recent rally.

BoE surprised the markets by expanding its asset purchase program by another GBP 50b to 175b today. The accompanying statement said that recession in UK appears to be deeper than previously thought and the margin of spare capacity will bear down on inflation in the medium. Chancellor Darling authorized the program and said in a letter to BoE that increase in the ceiling would provide the MPC with scope to vary the stance of monetary policy to meet the inflation target. BoE left interest rate unchanged at 0.5% as widely expected. Focus will turn to inflation report to be released on Aug 12 and MPC minutes on Aug 19.

ECB left rates unchanged at 1% as widely expected. Trichet hinted that there won't be change in interest rates soon as they are confirmed to be appropriate by recent data. Trichet expects economy to be weak in 2009 but gradual recovery would be seen next year after a phase of stabilization. On inflation, Trichet said that annual inflation rates will remain temporarily in negative territory but will turn positive later this year.

Other data released today saw German factor orders rose 4.5% mom, dropped -25.3% yoy in June. Canadian building permits rose 1.0% mom in June. Australian job market unexpectedly added 32.2k jobs in July versus expectation of -18k contraction. Unemployment rate also stayed unchanged at 5.8% comparing to a rise to 6.00%. However, the positive headline data is dampened by the fact that full time employment still lost 16k in July. On the contrast, New Zealand unemployment rate rose sharply from 5% to 6% in Q2, highest in almost nine years and the biggest quarterly jump in history.

GBP/USD Mid-Day Outlook

GBP/USD's sharp fall and break of 1.6886 minor support indicates that an intraday top is in place at 1.7043 and pull back should now be seen to 4 hours 55 EMA (now at 1.6723). Nevertheless, it's too early to call for completion of recent rally with 1.6338/5582 support zone intact and another rise is still in favor. Above will bring one more rise towards 50% retracement of 2.1161 to 1.3503 at 1.7332. However, we'd expect to see further loss of momentum as GBP/USD approaches this level and finally bring reversal. Sustained break of 1.6338/6582 will now be an important indication that the larger trend in GBP/USD has reversed and will turn focus to 1.5983 support for confirmation.

In the bigger picture, there is no change in the broader outlook that rise from 1.3654 is the third leg of correction that started at 1.3503, which corrects the whole down trend from 2.1161. Such correction should be near to an end even though further rise would be seen after taking out 1.6742 high. Upside is still expected to be limited below 1.7332 as the correction is expected to conclude in resistance zone of 1.6428/7332 (38.2% and 50% retracement of 2.1161 to 1.3503). Decisive break of 1.6338 support will now be an important signal that indicates such consolidation is already finished. Break of 1.5983 will confirm and turn medium term outlook bearish for a retest of 1.3503 low eventually.