After Fed Chairman Allan Greenspan's testimony on Thursday, there is little question whether the Fed will cut its policy making fed funds interest rate, but rather by how much. Market sentiment is almost unanimous in expecting 50 basis points. This would bring the fed funds rate down to 5.5 percent, narrowing the spread with the ECB to only 75 basis points.

The ECB meeting follows the Fed by one day and comments by key ECB officials indicate that the Bank is not ready to act yet. M3 money supply is still above the critical 4.5 percent ECB target and inflation continues to be in excess of its 2 percent target even though underlying inflation is for the most part under control. Besides, the ECB has gone to great lengths to prove that it is its own master and not influenced by Fed actions. ECB monetary policy is on hold, and though not under pressure to cut rates at the moment, a further 50 basis point cut by the U.S. Federal Reserve would result in a "very thorough" discussion of policy in the ECB's Governing Council, ECB council member Ernst Welteke told reporters Friday.

The Bank of England will meet the following week (February 7 and 8). Now that preliminary fourth quarter GDP shows weakening and inflation remains far below the Bank's 2 percent target, the prospects of a rate cut after the February 7 and 8 meeting of the Bank of England's monetary policy committee are undiminished, especially after the close call at January's MPC meeting which saw the committee vote 5 to 4 to leave rates on hold.

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