Big day ahead for the pound

The pound will be a big market mover tomorrow with the Bank of England minutes and employment reports due for release.

Although the central bank meeting was held before the latest liquidity crunch, we believe that the minutes should be dovish as the outlook for UK growth and credit conditions deteriorate.

This morning, the Bank of England also pumped GBP5 billion into the money markets which is the first time that they have made emergency liquidity provisions since September. Like the US, they have recognized the severity of recent problems and are scrambling to find solutions.

Consumer prices continue to rise with the annualized pace of CPI growth hitting 2.5 percent. Core prices are slightly weaker, which may also give the BoE a reason to be more dovish. As for the labour market, declines in the employment component of construction and service sector PMI suggest that the labour market may be deteriorating.