The ECB is under pressure to reduce the cost of borrowing today following a sharp reduction in industrial production in the Eurozone. The Euro is weaker this morning ahead of the decision and the Dollar has been supported overnight by underlying bearish market trends.

Pound Sterling - UK Markets

The Pound is 1% higher against the single currency amid expectations of an interest rate cut from the ECB. Sterling has gained slightly to 1.46 versus the US Dollar.

More profit losses from the High Street this morning as Argos and Curry’s announced a 10% decline in sales figures in the three months to January. UK markets barely registered the Government’s £20 billion finance package for small businesses yesterday although the Pound has continued to strengthen over the Euro ahead of the ECB meeting today. The prevailing market view at present is that the ECB lags behind the Bank of England in terms of monetary easing policy. Although Sterling is likely to continue to trade at low levels internationally as it falls into the trough of the downturn, decisive action from the MPC means we could see recovery in the UK begin earlier than in the Eurozone. There is no data due in the UK today.

US Dollar - US Markets

The Dollar is retaining its current strength, supported by the announcement of President Obama’s $775 billion rescue package and the international flight to quality while market confidence is low.

Retail sales fell 2.7% in December despite the busy Christmas period. This is a decline for the sixth consecutive month and comes amid news that recession is expected to drag on throughout 2009. Negative sales data led to a negative trend in equity markets yesterday. Although economic downturn in the US remains severe, the US is also expected to be the first economy to enter recovery and international risk aversion is supporting the Dollar at present. Oil has risen to $45 a barrel as OPEC has announced further production cuts in the face of reduced demand. Producer Price Indices and the Philly Fed Manufacturing Survey are due out in the US today.

Euro - European Markets

The Euro is back to 0.90 versus the Pound ahead of an interest rate decision from the ECB.

Eurozone industrial production fell by 7.7% in the year to November. This contraction was larger than expected, coming after the 5.7% revision for the year to October and reinforced the view that recession will be severe in the Eurozone. The Standard and Poor’s cut Greece’s credit rating yesterday and official figures show inflation for the 16 member region has fallen to a 26 month low, largely on the back of cheaper energy prices. These figures are adding to the case for an ECB interest rate cut and a 0.5% reduction is expected, taking the base rate to 2%. This will match the lowest rate since the ECB was founded and could be set to fall as low as 1% later in 2009. The decision will be announced at 12:45 GMT and will be followed by a speech from President Trichet.

Other Currencies - Highlights

The Australian and Kiwi Dollars continued to weaken yesterday against the Pound and US Dollar as risk aversion prevailed internationally. The Australian unemployment rate rose 0.1% to 4.5%.