There has been a lot of action in the currency market this morning, mostly centered on the British pound and Euro. However this morning's US data should not be ignored especially since we have non-farm payrolls due for release on Friday. Jobless claims broke the psychologically hobbling 600k mark to rise by the largest amount in 26 years. The total number of people collecting unemployment benefits also jumped to a record high of 4.788 million. It won't be long before we see 5 million people on unemployment rolls and that could be very damaging to consumer confidence. We continue to believe that non-farm payrolls will be weak but possibly not as bad as the December figures. We expect risk aversion to resume going into the payrolls report as investors realize that the economy remains in bad shape and will stay that way for the next few months.

As expected the BoE cut the overnight lending rate by 50 basis points to 1.00% - the lowest UK rate in the 300 year history of the central bank. BoE cited the risk of a substantial undershoot in the country’s inflation rate and noted that the series of rate cuts will eventually have a significant impact on the UK economy.

Euro and pound were generally range bound in early European trade as the currency market awaited rate decisions from both the BoE and the ECB due 12:00 and 12:45 GMT respectively. With economic calendar essentially barren trading was likely to remain choppy as EUR/USD tried to hold on to the 1.2800 level while cable consolidated around 1.4400.