BoE is widely expected to cut the base interest rate by 25bps to 5.25% today, after holding rates steady by 8-1 vote in Jan. Downside risks to the UK economy remains substantial considering the softening in housing markets demands as well as contraction in consumer spending and deterioration in consumer confidence. However, Governor King, who was reappointed to a second five-year term last week, indicated in a speech that inflation could be driven above 3% this year by surging food and energy prices. The minutes of the January meeting also suggested that inflation risks are still in the committee's mind even though weight is more on risks to growth. Hence, markets expectation seemed to settle at a 25bps cut today and further 50bps cut by the end of the year.

ECB, on the other hand, is expected to hold rates at a six-year high of 4.00% today. Focus will again be on Trichet's post meeting press conference. While Trichet could maintain his hawkish tone with stress on ECB's mandate on price stability, attention is on whether his tone on downside risks to growth changes. There are increased speculation that recession in the US would eventually drag down growth in the Eurozone and ECB would eventually follow other major central bank's path to cut rates in 2H.

Released overnight, New Zealand's fell to a record low of 3.4% in Q4, suggesting that labor markets remains tight despite record high interest rates. Swiss unemployment rate remained unchanged at 2.8%. Industrial production and manufacturing production in UK will be released today before the BoE announcement, so is Germany factory orders. From US, jobless claims is expected to drop from last week's surprisingly high figure of 375k to 340k. Pending home sales is expected to drop -0.5% in Dec.

GBP/USD Daily Outlook

Daily Pivots: (S1) 1.9557; (P) 1.9609; (R1) 1.9665; More Pivot Points

Cable turned sideway after fall from 1.9957 extended to as low as 1.9552. Nevertheless, with 1.9665 minor resistance still holds, intraday bias remains on the downside and further fall is expected to retest 1.9337 low. However, firm break there is needed to confirm whole down trend from 2.1161 has resumed for next medium term support at 1.9183. Otherwise, consolidation from 1.9337 could still extend further. On the upside, above 1.9665 will turn intraday outlook consolidative first but recovery should be limited by 1.9791 resistance and bring another fall.

In the bigger picture, as discussed before, prior break of medium term rising channel and 2.0 psychological level at least indicate that rise from 1.8090 has already completed at 2.1161. With 55 weeks EMA taken out too, it's likely that the medium term up trend from 1.7047 has also completed. Deeper medium term decline is expected towards 61.8% retracement of 1.7047 to 2.1161 at 1.8619. On the upside,break of 1.9957 is needed to indicate that rebound from 1.9337 is still underway for 2.0099 resistance. Otherwise, short term outlook will remain bearish even in case of interim recovery.