The ECB will face conflicting pressures and a bias towards stating growth risks may unsettle the Euro to some extent.

There was a further 1.2% drop in German retail sales for November after a 2.3% decline the previous month. Although the industrial orders data was robust on Tuesday, production also recorded a further 0.9% drop for the month while French industrial data was also weak on Thursday.

The weak consumer spending data this week will reinforce speculation over a sharp Euro-zone economic slowdown and will increase policy complications for the ECB. The most likely outcome is that the bank will leave interest rates on hold this week, especially as a policy change now would destabilise the markets.

The bank’s statement will be watched very closely for hints on future policy. The ECB will certainly want to maintain a tough approach on inflation, especially as it will want to influence wage negotiations. Nevertheless, the bank is also likely to be increasingly cautious over the growth outlook which would tend to undermine the Euro. Any change in rates on Thursday would trigger a large spike in volatility.