The greenback edged higher against the euro and sterling in the Wednesday session, rallying to 1.2814 and 1.4327, respectively. US economic data was mixed today, consisting of January ISM non-manufacturing survey and the ADP private sector payrolls report.

The January ISM non-manufacturing survey unexpectedly improved to 44.2, from 38.9 in December. The ADP private sector payrolls report in January was slightly better than expected, revealing a loss of 522k jobs instead of the 530k loss forecasted, and improving from December's loss of 693k jobs. Traders will look ahead to Friday's January labor report. The January unemployment rate is expected to edge further 7.4%, up from 7.4% previously, while non-farm payrolls are estimated to improve to 500k versus 524k a month earlier.

Euro Slides, Awaits ECB

The euro slid to near the 1.28-handle amid soft Eurozone data. The December retail sales figures were flat on a monthly basis, while posting a 1.6% decline versus a 1.5% decline a year earlier. The Eurozone services PMI was slightly worst than expected at 42.2, versus 42.1 previously.

Although the ECB is not expected to change rates when it announces its decision later in the session, the key focus will be on the Bank President Trichet's subsequent press conference. With the ECB seen leaving rates unchanged at 2.0%, the focus will be on hints of what the Bank will do at that March meeting. We expect the ECB to signal a 50-basis point cut at the next meeting and foresee the Bank to cut by a total of 100-basis points by year end, bringing the benchmark lending rate to 1.0%.

EURUSD holds steady at 1.2850, with support seen at 1.2830, followed by 1.28 and 1.2750. Additional support is eyed at 1.2720, backed by 1.27 and 1.2660. Gains will target interim resistance at 1.2870, followed by 1.29 and 1.2940. Subsequent ceilings are seen at 1.2980, backed by 1.30 and 1.3040.

Sterling Steady Ahead of BoE

The Bank of England is expected to cut rates further when it announces its decision early Thursday morning. Consensus estimates look for the BoE to ease rates by 50-basis points to 1%. Given the rapid deterioration in UK economic fundamentals, we expect the BoE to continue supporting the economy with aggressive rate cuts.