After yesterday's roller coaster of news headlines and rash of economic data, today's Asian session was subdued and meandering. EURUSD was able to clawback yesterday's losses trading from 1.3480 back to 1.3570 while cable's bullish momentum continued, taking the pair up to 1.6185. Asian regional indices are moderately higher with the Hang Seng leading the way up 1.12% (prompting USDCNY to break 74 pips lower to 6.5855). Asian sovereign buying continued today as demand was reported near the day's lows. Yesterday's Euro zone GDP printed slightly below expectations at 2.0% y/y, however the robust German ZEW numbers helped lessen the blow. In addition, the Spanish inflation reading which highlighted healthy price increases should discredit the two-track economic theory and support the potential ECB decision to tighten. The dream of an ECB jumping ahead of the G4 rate curve has given the EUR support in recent weeks and will continue to be a core driver to the single currency's fate. The other driver will be the so-called comprehensive solution which seems to be in flux. 5yr CDS prices and yields in peripheral nations have been steady increasing in February as participants suspect that countries are too far apart to reach a meaningful resolution. Yesterday, the EU spin machine was on full blast from Brussels, with well timed comments providing markets with much needed clarity. Amongst the remarks was a basic timeline, specifying March 21st for a draft of the communiqué (where all deals and plans will be formalized), then deadline for completion at the EU summit on the 24-25th. We suspect that the rhetoric and actions of EU policy makers will drive FX markets to a greater extent than economic data the closer we inch to the March 25th deadline. The CHF was able to regain some ground today on the back of some comments in a Swiss newspaper made by SNB Governor Hildebrand, though the content was largely recycled news. The article quoted Hildebrand saying In the long term, it is clear that the national bank won't be able to maintain the current expansionary policy if growth meets projections. The comment holds nothing ground breaking or shocking as most participants never expected the SNB to retain its ultra-lose monetary policy for all of 2011 given the dynamic Swiss economy. However, the question of timing is critical and this antiquated comment doesn't shine any light on this issue. We suspect that most traders will fade the corresponding CHF strength and wait for more substantiated reasons to buy CHF. Perhaps the most interesting economic data yesterday was the surging inflation numbers out of the UK and latest letter from BoE Governor King to Chancellor Osborne. In the letter King sounded hawkish stating every member of the Committee is conscious that there are large risks in both directions. And no one should be in any doubt that when the balance of risks requires it, every member of the Committee is determined to act to adjust policy in order to bring the risks back into balance. This elevated inflation data combined with members seemingly ready to address inflation set the stage for today's Inflation report (the most recent look at the Banks view on near term inflation), Kings comments and next week's BoE MPC minutes. We expect the unrelenting inflation environment and diminishing concern over the recovery to push MPC members towards a hike by the middle of 2011. For a central bank who see little benefit merely fine tuning monetary policy, this could lead to further hikes in 2011 and provide the GBPUSD ample room to gain against the USD. In the US session the FOMC minutes are expected to show some minor adjustments lower for unemployment and higher forecasts for inflation, however the overall feel of the minutes should echo recent comments that policy is currently appropriate.