China’s inflation rate has drop to 3.4% in April from 3.6% in the previous month and below the Chinese government target of 4%.This will reduce the headache for the government as rising consumer costs have been one of the biggest causes for concern in recent times reaching as high as 6.5% in July last year.

The drop in the oil price has certainly helped China’s progress alongside its bid to improve domestic demand to offset their fall in global demand for their exports.

Recent data suggests that Chinese consumption is struggling as imports grew only 0.3% last month compared to 5.3% in March.

Consequently investors will be keen to see how policy makers act within the next few months, perhaps leading to a cut in interest rates.

Back in Blighty, the NIESR National Institute for Social Economic Research (NIESR)’s reserach indicates that UK GDP grew by 0.1% over the quarter to April following the 0.2% drop in the previous 3 months.

Details of the report revealed that the negative output is expected to widen further as a result of the sluggish economy.

They expect the UK economy to remain broadly flat over the next 6 months according to the report.

These latest figures support the Bank of England’s case to maintain low interest rates in an attempt to boost growth.

As expected both the interest rate decision and the QE programme where left unchanged yesterday.

Money markets were dealt a surprise as the Consumer Price Index (CPI) rose in the UK to 3.5% up from 3.4% in February according to the Office for National Statistics. The ONS blamed higher food prices specifically soft drinks, bread, cereal, meat, fruit and vegetables coupled with rises in clothing & footwear.

However there was some good news as utility bills were lower than one year ago following energy companies reducing tariffs in February last year.

All eyes will know be on the Bank of England as this latest rise could reduce the likelihood of additional Quantitative Easing in next months MPC meeting but with stuttering growth the Bank of England may have no choice.

So far today in the UK we have seen the UK Jobless Claims figures fall for this first time since last spring.

Unemployment fell by 35,000 to 2.65m according the ONS leaving the overall rate at 8.3%.

Furthermore we saw voting in the Bank of England for interest rates and QE voting come in at 9-0 and 8-1 to keep rates on hold and maintain the contribution at £3.25bln.

Sterling has rallied as a result of these figures and currently sits at 1.2212 against the Euro the highest reading since September 2010. Cable has also risen against the US Dollar and is fast approaching the key psychological level of 1.60 currently trading at 1.5979.

In other financial news Warren Buffet has announced he has stage one prostate Cancer which will create further hype around the successor to his Berkshire Hathaway business.

As for the rest of this week we are pretty light on data with inflation data in New Zealand, Canada and the Germany of any real significance.

The eurozone is still heavily under the spotlight as Spanish and Italians’ debt interest rates are still dangerously high.However sentiment that the ECB could resume emergency bond buying has helped to ease fears.

The euro still remains pegged toward 1.31 against the US Dollar and 1.30 remains a key support area for EUR/USD and given the consolidation at 1.31 we could see some recovery towards 1.3150 to 1.32.

The Pound on the other hand is going from strength to strength and has hit a one year high on a trade weighted index- that is the Pound as a measure against a basket of currencies.

The Pound initially edged higher against the euro in line with euro concerns and improved economic numbers from the UK.

Sterling however has not managed a sustained push higher against the euro. This suggests a lack of appetite to sell the euro too much as the market adopts a wait and see approach to the developments on Spain and Italy.

In other news the yen fell for a second day against the dollar and euro after Bank of Japan Governor Masaaki Shirakawa indicated further easing of monetary policy.

Later today we see further feedback from the US with initial jobless claims and the producer price index- with markets in risk off mode and following weaker than expected payroll numbers last week a good set of numbers is hoped for.

Europe’s 17 eurozonegovernments have agreed to deliver €500 billion in a new bailout funds today in the hope of erecting a firewall big enough to contain the sovereign debt crisis and encourage the International Monetary Fund members to commit a similar sum to emergency reserves.But the eurozone finance ministers, meeting in Copenhagen amid calls to erect the “mother of all firewalls”, ditched explicit earlier proposals to keep a further €240 billion (£200billion) in reserve for the next two years.

The deal conformed to German prescriptions for a minimalist bailout fund, a recipe that the European commission in advance described as inadequate to the challenges confronting the euro.

Ministers nevertheless endeavoured to impress the bond markets, the Americans, and the Chinese, trumpeting the agreement as worth “more than a trillion dollars” in the hope that this will press the big IMF donors into doubling the monetary fund’s reserves to a similar figure next month.

“We are now in a strong position for discussion on the IMF in April. It is a good signal,” said the French finance minister, Francois Baroin.

“All together the euro area is mobilising an overall firewall of approximately €800 bn, more than $1tn,” said a Eurogroup statement.

But that figure included €100 billion in bilateral loans to Greece from EU countries in 2010 as well as €200 billion to Ireland, Portugal and Greece from the temporary eurozone bailout fund which closes next year, although those three programmes will run their course until 2015.

The Copenhagen meeting degenerated into acrimony and some chaos when the Austrian finance minister, Maria Fekter, upstaged the eurozone leaders by first announcing an €800 billion firewall.

Jena-Claude Juncker, the veteran Luxembourg prime minister who has been chairing the eurogroup for eight years and whose term expires in June, threw a hissy fit and cancelled a media conference at which he was to unveil the decisions.

The new money comes in the form of the European Stability Mechanism (ESM), the permanent eurozone bailout kitty and embryonic European Monetary Fund which starts in July. The ESM’s launch has already been brought forward and ministers on Friday also agreed to speed up the process of paid-in capital to get the fund fully operational within two years.

Its lending capacity was capped at €500 billion, as has long been planned.

A draft statement yesterday said that the spare €240 billion would be held in reserve for emergency use, but was dropped today.

The permanent fund’s lending capacity hinges on €80 billion being paid in five instalments till 2014 in order to retain a triple-A credit rating, meaning that it could be two years before the fund is operating fully as foreseen.

But the parallel running of the current temporary and the future permanent funds will ensure a lending capacity of €500 billion, the ministers said.

Yesterdays appealing comments by Fed Chairman Bernanke, in addition to better than expected results for German IFO business confidence last month, have boosted risk assets whilst weakening the Greenback against Sterling and the euro. Markets appear to have shaken off, at least for now, growth worries stemming from weaker manufacturing confidence surveys in China and Europe last week.

The S&P 500 climbed 1.4% to 1,416.51, its highest close since May 2008.

The Dow Jones rose 1.2%, while the Nasdaq gained 1.8% to close at 3,122.57, its best finish since November 2000.

Ben Bernanke continued his stance that supportive monetary policy is still necessary particularly given worries about the jobs market and additional QE may still be needed.

Today markets will focus on US and French consumer confidence coupled with bill auctions in Spain and Italy. US consumer confidence is likely to slip slightly while the bill auctions are likely to be well received.

Sterling has failed to maintain gains above 1.59 against the Greenback over recent weeks let alone manage to test the key psychologically level of 1.60.

Therefore the current move above 1.59 could be a short one.

For the break above it will require an improved downtrend in the Greenback motivated by a sharp enhancement in risk appetite and/or a drop in US bond yields for Sterling to move much higher.

Both are unlikely.

Sterling will be susceptible to a general stronger Dollar for the rest of this year but could outperform against the euro.

EU officials are desperately trying to convince private holders of Greek bonds to accept a crucial debt swap deal ahead of today’s deadline. In order for Greece to receive a second bailout it will need at least two thirds of bondholders to take a 53.5% cut in the value of their holdings and the deal is considered essential in Greece’s attempt to avoid a default.

According to the Institute of Finance yesterday just under 40% of the bond holders had agreed to the new deal leading to a nervy countdown at 8pm GMT deadline later today.

If the total number of bond holders reach the required 66% (approx €150bn) agree to the swap, the government can force the other bond holders to take the haircut too.

Remarkably the euro remains relatively resilient in the face a Greek default up slightly against the Greenback reaching 1.3217.

Back to the UK and Quantitative Easing has knocked £90 billion off pension funds according to National Association of Pension Funds (NAPF).

The news came from two recent studies and blamed lower bond yields and consequently pushing final salary pensions further into the red.

Joanne Segars, Head of the NAPF, said: “Businesses running final-salary pensions are being clouted by QE.  Deficits that were already big now look even bigger because of its artificial distortions.

“Firms are legally obliged to fill the deficits, and that diverts money away from jobs and investment, and will lead to further closures of final salary pensions in the private sector,” she explained.

Finally, today we have interest rate decisions in the UK and Europe both expecting no change and consequently little FX impact.

Reduced revisions to ECB growth forecasts will however, could underpin a more negative tone in this afternoons press conference.

The euro currency is enjoying a healthy bounce after the completion earlier in the week of a further Greek bailout to cover March debt obligations and through positive German data. Data from Germany showed that GDP had shrunk in Q4 by 0.2%, however strength in recent ZEW and IFO surveys suggest that the economy will escape falling into recession.

The euro was also helped by good news from over the pond as weekly US jobless claims came in unchanged at 351k and this level remains the lowest since 2008. This number has helped to boost the expectation that the approaching Non Farm Payrolls on Friday 9 March will better than market expectations.

Recently US data has started to show signs of improvement as the powerhouse that is the US economy looks as though it is slowly clawing back to growth.

For the markets this improves the appetite for risk and currently this is USD negative.

We have seen EUR/USD especially push higher and test 1.34- the highest level since December, GBP/USD has also edged higher but the pound remains a little subdued.

Wednesday’s MPC minutes helped to put a dampener on the Pound as expectations rose for further QE in 2012- probably in May.

With inflation falling and economic growth struggling then QE remains very much on the table with a cocktail of low interest rates to remain.

The Pound has fallen on the back of this market feedback and is struggling to gain momentum even in a sentiment which has turned risk on.

The Bank of England voted as expected to keep interest rates on hold and this decision was achieved with a unanimous 9-0 decision implying that the base interest rates will not be rising anytime in the near future. A slight weakening factor for Sterling as an increase to the interest rate would add to the underlying value of the currency.

This hardly came as a surprise as an increase in the rate would cripple growth in what are troubled times.

The more interesting vote was the 7-2 result over quantitative easing.

Seven members voted in favour of the £50 billion extra that has been pumped in while 2 members (David Miles and Adam Posen) wanted £75 billion to be added.

This caused most of this morning’s weakness in Sterling as there is potential that more QE could be pushed into the UK economy.

The BoE also sees credit remaining tight and looks for global growth to weaken.

Wise Money had to mention the Greek saga which seems to be coming to a close, but the main talking point will be if problems re-open looking ahead to the rest of the year.

It is thought the new loan of €130 billion will cover Greece in the short term, but what will happen when that starts to run out.

Various countries that form the IMF are looking for officials from the European Union, ECB and IMF to monitor the Greek government from Athens and make sure the cuts actually take place.

Politicians in Greece have at long last approved austerity cuts totalling €3.3 billion in order to secure a second bailout deal. Official talks now focus on the particulars of the bail out package, specifically a cut in Greece’s debt to GDP ratio to120%.

Nevertheless, the fact European Finance Ministers have suspended additional funds for Greece with the expectation that measures will be implemented, suggests there is the prospect for further uncertainty.

A Greek government vote is set to begin over the next couple of days, may see some advancement but investors will trade carefully ahead of the vote.

EUR/USD rallied to a high of around 1.3322 but failed to break above its 100 day moving average at 1.3332 following the contract.

As expected the ECB offered no help to the EUR, with market interest continuing to centre on the second 3-year LTRO on 29 February.

As the Euro continues to face against a backdrop of issues any upside for EUR could be limited in the short term. In any case the currency was already pricing in a lot of good news. EUR/USD will face major resistance around 1.3388.

Remarkably, risk measures are moving higher once again, providing some pressure on risk assets in the near term.

Markets today will digest the expected injection of £50 billion in quantitative easing from the Bank of England.

Wise Money says keep your hard hats on-  the crazy levels of volatility across the FX markets will continue today as we look forward to the US employment number this afternoon. It will be nice to get back to economic data driving moves in currencies, given trading has been totally dominated by central bank announcements and political news hitting the wires.

In no particular order, the market moving events have been US Fed Chairman Bernanke speaking yesterday, the Chinese premier suggesting they may invest further in the European bail-out fund (after a quick whisper in the ear by German Chancellor Angela Merkel) and the will they won’t they saga still playing out over Greece.

Throw some disappointing American data into the mix, stir together and sit back and watch the Euro-Dollar move like a yo-yo.

The Bank of England arch dove Adam Posen has long argued for more QE before it became fashionable again, and he suggested yesterday than the Bank should not stop at buying Gilts in the easing process.

Mr Posen thinks corporate debt should be included in the debt the bank buys, as the current mechanism supposed to lower rates on corporate debt is broken because the banks just park newly minted cash on their balance sheet and shun assets perceived as higher risk.

The BoE are expected to announce another £50 billion of QE at their meeting next week, but it will be gilt only.

It will take time, a considerable change in thinking in the Bank or a serious deterioration in the economic climate in the UK for Mr Posen to get his way.

The expectations this afternoon are for the US economy to add around 150,000 jobs in January, lower than December but expected by the market because of the effect Christmas has on the job market.

As we mentioned before, the way the US Dollar reacts to positive data is changing from risk-on, risk-off to the complete opposite, where the Dollar rises on positive data.

Trying to guess which way the Dollar moves this afternoon is becoming increasingly difficult, which means trading will be choppier than usual in the build-up and immediately after the announcement.