Sterling strengthened yesterday on the back of better than expected retail sales for the month of December, The positive release was followed by data from the British Chamber of Commerce, which showed Britain was on the verge of leaving its worst recession since World War II. Their survey of the fourth quarter of 2009 showed strong improvements in employment and most noticeably in the manufacturing sector and the survey was consistent with a 4th quarter GDP growth of 0.7% in 2009.

Also overnight Bank of England monetary policy committee member, Andrew Sentence, spoke to the Guardian , Sentence feels that quantitative easing has been a success and the UK now needs to adopt a “wait and see” approach. Sentence also added that he felt the BoE has done enough to lift Britain out of its deepest post war recession and will need to consider raising interest rates this year if inflation becomes threat as the economy recovers. His comments helped support the pound going into today’s trading session.

Elsewhere China said it would tighten banks reserve requirements, raising concerns that Chinese demand could fall and slow global economic recovery. A statement from China’s Central Bank, said that it would raise the reserve ratio by 0.5 percent, effective of next week. As a result commodity linked currencies, such as the Australian, New Zealand and Canadian dollars hit session lows against the US dollar, following a sell off in gold prices.

The dollar remained under pressure against most currencies as a result of an unexpected slip in the US’ trade balance. Figures showed the US trade balance showed a deficit of $34.8 billion in November. After last Friday’s worse than expected non-farm payroll figures, the trade deficit fuelled fears the US economic recovery may not be as bright as market participants had hoped thus weakening the dollar.

Today’s local data will centre on industrial production figures for the UK. The Euro Zone sees a range of data including German GDP, French CPI and inflation data alongside Italian industrial production. The United States has a fairly quiet day ahead with the only release of note being the Federal Budget for December.