How many times will Trichet use the words 'price stability'? (page 2 of 2)

The BoE is expected to cut interest rates by 25bp, but there is a small chance of a 50bp reduction. Conditions in the UK housing market have steadily gone from bad to worse with prices falling by the most since 1992 and mortgage approvals dwindling to the lowest since 1995. However like the ECB the Bank of England struggles with inflationary pressures.

Bank of England Governor King is committed to making sure that inflation does not become entrenched but comments from UK Prime Minister Gordon Brown suggests that the most likely option by the BoE is still a quarter point rate cut. Brown told BBC News that "because we've got low inflation we can cut interest rates."

How the British pound reacts to the latest interest rate cut will depend upon whether the BoE signals more easing. Getting a rate cut from the BoE has been like pulling teeth which is why we expect more neutral comments from the UK central bank.

Commodity Currencies Give Back Gains

The US Dollar has made a surprising U-turn against the commodity currencies. With minimal releases today, the Aussie dollar lost ground as consumer confidence figures hit a 15 year low.

The Australian economy is beginning to show signs of weakness and for that reason, we expect the unemployment rate to tick higher. After 4 months of strong job growth, Australian corporations are only expected to add 10K new jobs.

New Zealand also did not report any new data, but investors are still recovering from yesterday's plunge in the business opinion survey.

Canada on the other hand is set to release its New Housing Price Index, which is expected to decline, as the once resilient economy feels the pressure of a US slowdown. IMF officials confirm that Canada will be affected by a US slowdown, as they cut their growth forecasts to 1.3%.

Bank of Japan Keeps Rates Unchanged, Approves Shirakawa as Governor

The Bank of Japan kept interest rates unchanged at 0.5%, which was right in line with market expectations. The decision was unanimous because it was only the choice the central bank really had in the face of mixed economic data.

The Japanese current account and trade balances are due for release tonight. The deterioration in the merchandise trade balance and manufacturing PMI suggests that the surplus could fall short of expectations.

Meanwhile the BoJ no longer has a leadership vacuum as Shirakawa becomes the official BoJ Governor.