The Euro was hit yesterday with widespread selling pressure after ECB president Jean Claude Trichet announced a change in stance over current monetary policy. Interests rates in the Eurozone currently sit at 1.5% due to previous concerns over inflation risks. Despite inflation sitting above 2% and the ECB’s mandate to maintain price stability and control price pressures there has been a turnaround in policy with the primary concern now being the economic recoveries for the 16 nation Euro based contingent.

The escalation in the debt crisis has led the ECB to scale back expectations for economic growth from 1.9% to 1.6% for 2011 and from 1.7% to 1.3% for 2012. Meanwhile the outlook for problems associated with inflationary pressures have also been scaled back. Markets are now poised for an escalation of Eurozone woes as traders worry whether European banks will be able to contain the worsening situation.

Trichet’s speech yesterday had a considerable softer than expected tone and as a result the Euro reeled backwards against most of the world’s most actively traded currencies. The expectation is that this move could continue further as the full extent of the debt crisis is realised in coming year.

Yesterdays Bank of England announcement benefited the Pound on news that a fresh round of QE was not being considered in the short term. Despite the UK anaemic economic recovery the BoE are still maintaining a ‘wait and see approach’.

There is little in the way of trend setting data today, UK producer prices will feature yet market direction is likely to be characterised by ongoing sentiment moving into next week.