Despite starting yesterday poorly, sterling managed to recoup some of its recent losses following profit taking amongst investors as well as a successful 10 year gilt auction.

However the UK’s triple-AAA rating still remains under threat.  Figures released yesterday morning showed that the British government borrowed more than expected in December, indicating a continued failure to bring the budget deficit down.

Despite starting yesterday poorly, sterling managed to recoup some of its recent losses following profit taking amongst investors as well as a successful 10 year gilt auction.

However the UK’s triple-AAA rating still remains under threat.  Figures released yesterday morning showed that the British government borrowed more than expected in December, indicating a continued failure to bring the budget deficit down.

The ZEW Survey showed investor sentiment in Germany rose to a two and a half year high citing that sentiment had improved as the uncertainty over the euro zone had diminished. European Union Economic and Monetary Affairs Commissioner Olli Rehn’s upbeat comments also seemed to support sentiment by saying that Ireland and Portugal will be able to return to full market financing after their bailouts.

Both ECB president, Mario Draghi and Bank of England governor, Mervyn King made speeches yesterday evening about their respective economies. Draghi maintained his hawkish tone by stating that the worse had past in the euro zone and that it will be up to the respective governments in the bloc to carry it forward. Mervyn King on the other hand seem to drop a hint that growth in the last quarter of 2012 will be considerably weaker when figures are released on Friday as well as indicating that the  Bank of England would be willing to expand its asset purchasing program if it is needed.

The pound retreated overnight following Mervyn King’s speech and has started on the back foot this morning as David Cameron delivers his EU speech promising a referendum on whether Britain should leave the EU.

Key events for today include the first day of the World Economic Forum in Davos, the Bank of England minutes, UK unemployment figures, The Bank of Canada’s monetary policy report and consumer confidence figures released from Europe.

Key Announcements:

9.30am – UK – Bank of England Minutes

9.30am – UK – Claimant Count Change: Expected to rise from -3k to 0k.

9.30am – UK – ILO Unemployment Rate: Expected to remain at 7.8%.

15.00pm – CAD – Bank of Canada Monetary Policy Report.

15.00pm – CAD – Bank of Canada Interest Rate Decision: Expected to remain at 1%.

15.00pm- EUR – Consumer Confidence: Previous figures were -26.5.