The London session was lackluster early on but the price action picked up on the back of the BOE rate cut. The Bank of England cut rates by the anticipated -50bps to a new record low of just 1.0%. Cable rocketed higher despite the overall dovish statement that suggested a weak 1H 2009 was likely in the works. GBP/USD was sitting about 200 pips higher near 1.46 just ahead of the NY session. The market is hoping that the statement that rate cuts will eventually filter through into the real economy comes to fruition. With the BOE admitting that the transmission mechanism is not functioning, however, we doubt this rally on hope will last. GBP/USD back below 1.45 would be a problem for the pair near-term.

Economic data continued to disappoint out of the eurozone with German factory orders collapsing -6.9% in December. The market was looking for a more modest decline of -2.5% on the back of the -5.3% slip in November. This took the annual rate to -25.1% and suggests the eurozone's largest economy is likely to remain feeble through 1Q 2009. EUR/USD was pretty much unchanged and continued to trade within the tight 1.28/1.29 band ahead of the ECB rate decision and press conference. The market expects no change in rates and ECB President Trichet made it clear that March will be the next important rate meeting. The press conference that follows at 1330GMT should elicit good price action in EUR, however. Look for a good break to either side of the 1.28/1.29 range to be pretty big.

Upcoming Economic Data Releases (NY Session) prev est

  • 2/5 12:45 GMT EC ECB Announces Interest Rates 5-Feb 2.00% 2.00%
  • 2/5 13:30 GMT EC ECB Press Conference
  • 2/5 13:30 GMT CA Building Permits MoM DEC -11.80% -5.00%
  • 2/5 13:30 GMT US Nonfarm Productivity 4Q 1.30% 1.00%
  • 2/5 13:30 GMT US Unit Labor Costs 4Q 2.80% 3.00%
  • 2/5 13:30 GMT US Initial Jobless Claims 31-Jan 588K 592K
  • 2/5 13:30 GMT US Continuing Claims 24-Jan 4776K - -
  • 2/5 13:30 GMT US Fed's Plosser Speaks at Food, Water Conference
  • 2/5 15:00 GMT CA Ivey Purchasing Managers Index JAN 39.1 39
  • 2/5 15:00 GMT US Factory Orders DEC -4.60% -3.00%
  • 2/5 18:00 GMT US Fed's Bullard Speaks to Financial Analysts
  • 2/5 19:00 GMT US Fed's Stern Speaks in Minnesota on Policy