The risk trade was boosted overnight by a decent set of data from China.  Retail sales, production data and the trade surplus all beat market forecasts and strengthened the belief that China continues to drive the global economic recovery.  Banking lending in China while strong expanded at a slower pace underpinning forecasts that this may be tightened to ward off inflationary pressures.   Japanese machine orders (+10.5% m/m in Sep) also outshone market forecasts as did this morning's release of UK labour data.  The fly in the ointment was the drop in Australian consumer confidence which fell back in Nov, probably in response to this quarter's two rate rises from the RBA.  The better tone in Asian stocks was followed by an upward push in European equity indices which found further support in a spate of solid bank earnings from France, Italy and the Netherlands.  EUR/USD pushed back above 1.5000 in early London hours to touch an intraday high of USD1.5045 providing support for the view that as long as risk appetite holds and expectations for Fed rates remain distant, the USD will remain the whipping boy. 

Sterling has been hit hard on the release of this morning BoE Quarterly Inflation Report.  Cable has plummeted below the GBP/USD1.6640 level and EUR/USD has raced back over 0.9000.  Governor King laced the publication with a list of dovish statements including the forecast that output was unlikely to return to pre-crisis levels for some time and that on balance, CPI was more likely to be below target in 2 year time rather than above target.  This hints that monetary policy will remain loose for an extended period and suggests that the Bank may not be done with QE yet; a threat which is heightened further by King's endorsement over the success of the plan.  Also, undermining the pound is King's statement that the drop in the pound will help smooth the rebalancing of the economy.  King has previously been accused of talking sterling lower.  Next year, the government will be forced to remove fiscal stimulus and there is yet little evidence that QE is supporting the domestic economy.  While yesterday's trade data provided no clear signs that trade is being supported by the weaker pound, it is likely that this will become a more significant prop to UK economic activity.  Undermined by the threat of soft monetary policy and slow domestic growth, GBP is likely to remain on the back foot vs the EUR for some time.  Some badly needed good UK economic news had supported the pound earlier in the session.  UK labour data for the July to September period showed a small increase of 6K in the number of people in employment, the first increase since May-July 2008, this coincided with the smallest increase in the number of people registered as unemployed since March-May 2008.  Following the recent worse than expected news from the production sector and on the back of the terrible -0.4% q/q decline in Q3 GDP, these data finally provide evidence that the UK is emerging from the gloom; albeit several months after Germany and France. 

AUD/USD is presently little changed from last night's close. Gains made in early European hours on the back of the rise in risk appetite have been given back following a failure to hold new highs at USD0.9342.

The session this afternoon will be slowed by the closure of the US bond market in recognition of Veterans Day.