With Nick Griffin, Katie Price and the X factor’s latest batch of irritants hijacking newspapers, screens and radios, it was hard to imagine that news this week could get any more horrific. That was of course until GDP data was announced on Friday, creating a chorus of chatter suggesting that the Bank of England will extend their Quantitative Easing programme at their meeting next week.

This came after a week of ups and downs for the pound, which staggered in with a hangover last Monday after the Sunday Times said Bank of England policy-maker Adam Posen may support an extension of the central bank's asset-purchase program. However, the resulting 0.5% drop against the greenback was short-lived and by Wednesday sterling was alive and kicking striking a one month high against the dollar at nearly 1.66 and 1.11 versus the euro. This followed minutes from an MPC meeting which saw the committee voting 9-0 for no policy change and a hold on further quantitive easing measures.

The pound did however receive a sharp reality check towards the end of the week and by Friday morning UK currency struggled to sustain market levels of 1.09 and 1.64 against the US dollar.

Today’s speculation on the QE programme being extended was reiterated by former MPC member David Blanchflower. Looking like the archetypal bearer of bad news, he made an appearance on Bloomberg TV and said that the Bank of England could extend by as much as GBP250 billion in all from the current 175 billion.

If you looked closely enough at the dollar last Tuesday, you may have seen George Washington’s expression turn increasingly despondent as it plunged to a 14-month low against a gang of other currencies. Strength in global stocks saw traders opting to sell the greenback for higher-yielding currencies and assets more closely correlated with economic recovery. Only options-related buying kept US currency from reaching 1.50 against the euro and 90 against the yen.

The dollar remained vulnerable for the rest of the week, hitting a new low for the year against a rampant euro, which strengthened throughout the week on the back of an array of upbeat reports. The GBP1.50 barrier was well and truly broken and analysts seem confident that there is still upside potential for further gains.

The Australian dollar rose against the greenback to its highest level since August 2008 last Tuesday, touching USD0.930 as Reserve Bank of Australia Assistant Governor Philip Lowe said it is "appropriate" to remove stimulus as Australia's economy progresses. So far this year, the Aussie has risen more than 30% against US currency.

Things weren’t as bright for the Canadian dollar on Wednesday, which took a sudden tumble after the Bank of Canada decided to keep its interest rate at 0.25%. The bank had warned that favourable economic developments were being undermined by the Canadian dollar's strength. On the very same day the New Zealand dollar leapt nearly 1% to USD0.75, following comments from the Reserve Bank chief Alan Bollard stating that “a strong currency was not necessarily an obstacle to raising the cash rate.

Elsewhere, the yen held near three-week lows against the US dollar last Monday on expectations Japanese investors will short the yen as they step up purchases of higher-yielding foreign bonds. Throughout the week Japanese currency struggled near two-month lows against the US dollar and was not far from a one-year low against the Australian dollar at 84.20 yen.

Although speculation suggests the US is likely to return to growth in the second half of this year, recovery is far from certain. The Obama administration still needs to rein in a record USD1.4 trillion budget deficit and will be looking to pile more capital into the banking system. Although it’s already pushing more than USD1 trillion into the economy and lowering the benchmark rate to near zero, analysts believe this isn’t quite enough.

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Nigel Hodges (Currency Solutions).