he UK currency rallied by around three-quarters of a percent against the US dollar during London trading on Wednesday as futures market pricing for a January rate cut fell from closer to 70% to just above 50%. Economic reports out of the UK in the past few days have been behind some of this repricing, painting a slightly rosier picture than thought as recently as last week. Unemployment and earnings data suggests that the UK labour market remains solid. While yesterday’s CBI industrial trends survey remained in negative territory, it is also at least trending in the right direction.

The vote among the MPC was split 7-2 in favour of no change at the last meeting in December. We think that chances are high that Vlieghe and Tenreyro join the dissenters. On the other end of the spectrum, hawks Ramsden and Haldane are unlikely to vote for a cut this time around. Jon Cunliffe has also recently warned that prolonged easing may risk financial instability, while Ben Broadbent has also appeared to place a greater onus on UK labour data. Outgoing governor Mark Carney may, therefore, have the deciding swing vote.

As mentioned earlier in the week, the key to whether the BoE cuts next week may well lie with tomorrow morning’s PMI data, set for release at 9:30am BST (10:30 CET).

Lagarde to lay groundwork for ECB strategic review

Probably the big mover in the currency markets today will be this afternoon’s European Central Bank meeting.

We do not expect any change in policy, or even any real change in the stance of the bank’s communications from the December meeting. President Lagarde is likely to maintain her upbeat tone, stating that recent economic news has shown signs of improvement and that the slowdown witnessed of late has likely bottomed out. Investors will instead be focusing on comments regarding the bank’s strategic review. This review, which is expected to last most of the year, will include an evaluation of the structure, timeline and agenda of the Governing Council’s future policy meetings.

The bank’s rate decision will be announced at 12:30pm BST (13:30 CET), with Lagarde’s press conference to follow 45 minutes later.

US home sales jump at fastest pace in 2 years

EUR/USD looks prime for a breakout from its recent narrow range, with the pair barely moved from its 1.108-1.11 band.

Macroeconomic news out of the US yesterday was insufficient to meaningfully shift sentiment towards the dollar. Existing home sales rose were actually very impressive, jumping at their fastest pace in nearly two years (a 3.% MoM increase in December). While another encouraging sign that the US economy ended last year on a strong footing, the reaction in the FX market was limited given the already ultra-low expectations for any further easing in policy from the Federal Reserve any time soon.

This afternoon’s jobless claims data will unlikely rock the boat. Investors will instead be awaiting Friday’s preliminary US PMI data for January.