The Pound declined against the Euro and Dollar yesterday as concerns about U.K. economic growth contrast with worries about inflation and possible monetary tightening continue.

The minutes from the December 9 Bank of England meeting reveal a three-way split for the third consecutive month. Seven of the nine MPC members voted for no change in monetary policy while Andrew Sentance voted to raise rates and Adam Posen voted to increase bond purchases, as expected.

The Dollar made gains against the Pound and the Euro yesterday as the Dollar benefited from an increase in investors risk aversion.

Also to note Third quarter gross domestic product in the United States was revised to an annualized pace of 2.6% from 2.5%. Economists were expecting a revision to 2.8%.

The U.S. existing home sales climb 5.6% in the month to an annualized pace of 4.68 million units. This fell short of the 7.1% and 4.75 million consensus estimate. The data had little effect on currency market.

The Euro declined against the Dollar while making gains against the Pound as data released yesterday saw the German import price index up 1.2% m/m and 10.0% y/y.  The European Central Bank lent €149.5 billion to banks today, an indication that stresses remain in the Eurosystem banking system.  Ratings agency Fitch reported it may lower Greece’s credit rating to non-investment grade status.  Fitch will conduct a review of Greece’s “fiscal sustainability” in January and there is a “heightened probability” of a downgrade.  This negative sentiment impacting the euro is also being precipitated by uncertainty regarding Ireland, Portugal, and Spain.  Moody’s Investors Service placed Portugal’s short-term government bond ratings on watch yesterday and warned the ratings may be reduced a notch or two on account of “sluggish” economic growth.  Moody’s trimmed Ireland’s credit rating by five notches on 17 December.  A German government source this week reported Germany would support the ECB if it deems more capital is required.  There is market chatter that ECB President Trichet may bring up the issue of raising more capital when European Union leaders convene tomorrow.

Data released 23.12.10

UK      09.30 Final GDP (Q3)

US      13.30 Personal Income (November)

Consumption

Core PCE

US      13.30 Durable Goods (November)

US      13.30 Initial Jobless Claims (w/e 18th December)

US      14.55 Michigan Sentiment (December Final)

US      15.00 New Home Sales (November)