The dollar fell this morning, losing out to commodities currencies like the Australian dollar and against the euro, which got a lift from a raft of data that suggested European inflation may finally have peaked.
The dollar was already under pressure from investors who have grown more optimistic over the prospect that China's relaxation of tough COVID restrictions will breathe life into the world's second largest economy.
Data today showed French consumer price pressures cooled by a lot more than expected in December, while the previous day, German data also showed inflation fell significantly more than forecast. This came hot on the heels of Spanish inflation data last week that painted a similar picture.
The ECB in December sounded an unusually hawkish note, indicating it may lift rates by another 150 basis points in rapid succession. However, this morning’s data has cast some doubt on this.
Later in the day, investors will scour minutes from the Federal Reserve's most recent policy meeting for any additional clues as to where interest rates might head, although monthly employment figures on Friday will likely have more weight for the market.
The Bank of England (BoE) hiked UK interest rates by 0.5 percentage points to 3.5% in December, its ninth consecutive rate increase as it looks to battle soaring inflation.
The rise, which takes rates to their highest levels since October 2008, adds to existing consumer pressure by increasing mortgage and credit card rates, while deepening the UK's recession.
Threadneedle Street now expects UK GDP to decline by 0.1% in the final quarter of 2022, which is 0.2 percentage points stronger than expected, but would still show the UK entering a technical recession.
Predictions are we will be at 4.5% interest rates come May, and then we could see cuts introduced later in the year.
