With BoE's and ECB's interest rate announcements looming large on the horizon, traders and investors squared up their positions. The sterling clawed its way back from its oversold positions, notably versus the euro. However, the dollar also stabilised against the other majors following last week's US data-induced plunge.

GBP

The British Retail Consortium reported that retailers had their worst Christmas in three years. Halifax also reported that house prices grew last at their slowest rate since 1996, rising by only 5.2 per cent on the year. The cumulative effect of this data has been to add to the pressure on the BoE to cut interest rates again when the monetary policy committee meets this week.

USD

With unemployment rising to five per cent and weak spending over the holiday period, combined with near-record oil prices, could prompt a sharp slowdown this year. Fed policy makers are expected to cut interest rates by as much as 0.5 per cent when they meet later this month with a 0.25 per cent cut to four per cent seen as almost certain.

EUR

The euro lost a little ground versus the majors as investors squared up their FX positions prior to interest rate announcements from the European Central Bank and the Bank of England. Unemployment data and producer prices had little impact on financial markets with market focus firmly tomorrow's announcements.

JPY

The yen declined against fifteen of the 16ni most active currencies on speculation BoJ Governor Toshihiko Fukui will signal plans to delay raising interest rates, the lowest among major currencies.