A surprise interest rate hike of 0.25% in China provided some safe haven support for the dollar yesterday but gains were trimmed overnight as the impact started to wear off and markets turned wary of pushing the USD too far out of current ranges ahead of the early November FOMC meeting. A string of Fed officials speaking yesterday indicated that the central bank could unveil a second round of quantitative easing measures as early as next month. However, there was also evidence of some resistance to such a move, with Fed Governor Elizabeth Duke saying that more easing at next month’s meeting was not a done deal. As the debate over the outlook for policy continues, markets will be paying close attention to this afternoon’s release of the Fed’s Beige Book, which will form the basis for discussion at the November meeting

Elsewhere in the markets its time for the rhetoric to end and reality to bite for Chancellor Osborne as he delivers his Comprehensive Spending Review this afternoon. Will GBP react more to the deficit impact or the effect on future growth? Hard to call with any certainty ahead of the event but it does seem a lot of negative news is already in the price. Before that we get the MPC minutes at 9.30 where a split 1-7-1 vote is expected. Will others have been persuaded to vote for QE? I doubt it. The committee’s thoughts as always will be pored over for signs of future intentions but I suspect any reaction will be short-lived ahead of the Chancellor’s speech.

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