Central bank activity for the major currencies was somewhat sparse last week. The Bank of England and the Reserve Bank of Australia were the only major central banks offering significant information for the market to mull over.

Specifically, their releases consisted of the RBA's Monetary Policy Meeting Minutes that were put out last Tuesday and the BOE's MPC Meeting Minutes for November that came out last Wednesday.

RBA Minutes Give Little Hope for Additional Rate Hikes

Last Tuesday saw the RBA release the minutes of its Monetary Policy Meeting for November in which the central bank surprised the market for the second consecutive month by raising its benchmark Cash Rate to 4.75 percent from 4.50 percent.

October's decision saw the Australian central bank also surprise the market by leaving rates unchanged at 4.50 percent when the overwhelming majority of economists and market pundits had expected the central bank to raise its Cash Rate.

In their Monetary Policy Meeting Minutes, the RBA stated that:

"the medium-term economic outlook remained one of strengthening economic activity and gradually rising inflation, the Board judged that the balance of risks had shifted to the point where a modest tightening of monetary policy was prudent."

The statement went on to conclude that,

"Members noted that lending rates might increase by more than the cash rate, but this tendency would not be lessened by delaying a change in the cash rate. Lending rates had been rising relative to the cash rate since the global financial crisis, and the Board had taken this into account in setting the cash rate."

In essence, the RBA's latest Monetary Policy Meeting Minutes effectively dashed most investors' expectations that the RBA had any intention of raising rates further in the near future, although additional room still exists in case an extraordinary and unexpected development heats up the Australian economy to the point where the RBA would find it imperative to raise the Cash Rate to keep inflation under control in Australia.

BOE MPC Meeting Minutes Repeat Last Month's Vote

On Wednesday of last week, the Bank of England released its closely watched Monetary Policy Committee or MPC Meeting Minutes for November.

The MPC Meeting Minutes showed that the committee members had again split the vote three ways, with 7 of the 9 members voting to keep the BOE's Official Bank Rate at 0.5% and its Asset Purchase Facility at 200B. Nevertheless, two members partially voted against the decision.

Specifically, Adam Posen voted to keep the Official Bank Rate at 0.5%, but to increase the Asset Purchase Facility by 50B to 250B, and Andrew Sentence voted to increase the rate to 0.75% while keeping the Asset Purchase Facility at 200B.

The Meeting Minutes summarized its members' positions as follows,

"Overall, most members felt that the balance of risks had not altered decisively and that the right action at this meeting was to maintain the current, highly expansionary, stance of monetary policy. For those members, given current policy settings, the balance of probabilities suggested that inflation would fall back close to the target in the medium term."

With respect to monetary policy, the Minutes concluded that:

"It would be premature to tighten policy while a significant margin of spare capacity remained and medium-term inflation expectations remained anchored, as this implied that the economy could grow for some time at above-trend rates without increasing medium-term inflation pressures."

In related news, the Pound Sterling was under pressure for most of last week in part because of the Irish financial crisis. On Wednesday, the U.K. Finance Minister George Osborne helped calm the markets by stating that it was in Britain's national interest to have a stable Irish banking system and that Britain, "stands ready to support Ireland on the steps it needs to bring about that stability."

Furthermore, according to an estimate published in the Sunday Telegraph over this past weekend, British banks have more than £140B in exposure to Ireland and its current economic crisis. As a result, any worsening in the Irish debt situation could put further pressure on Sterling.

This Coming Week's Central Bank Activity

This week's primary central bank activity consists of the Tuesday U.S. FOMC Meeting Minutes for its November 3^rd meeting. The FOMC minutes will cover the new stimulus measures adopted by the Federal Reserve to inject an additional $600B to help keep longer term interest rates down by pushing up prices for U.S. Treasuries.

In addition, the Fed will be buying back Treasuries as well as Mortgage Backed Securities in the secondary market adding additional liquidity to the market.

Another important event will be the U.K. Inflation Report Hearings to be held before Parliament's Treasury Committee on Thursday. At them, the BOE's Governor Mervyn King and several MPC members will testify on the current high inflation rate in Britain and the U.K. economic outlook.

The Inflation Report Hearings will be several hours long and can create forex market volatility especially if comments about the currency markets are made or if hints are dropped that the present level of official interest rates should change.