German Producer Prices are set to drop -0.1% in January to bring the annual pace of wholesale inflation to 3.4%, the lowest in a year. The reading foreshadows continued downward pressure on consumer prices (the headline inflation metric) as manufacturers pass on lower production costs by way of cheaper finished items. Deepening recession saw the European Central Bank cut interest rates to a record low 1.50% and even alluded to the possibility of quantitative easing, saying it would study “additional non-standard measures”. Overnight index swaps suggest the ECB will remain on hold for the time being, giving the single currency an advantage against the commodity bloc (Australian, Canadian, and New Zealand dollars) where the easing cycle is expected to continue. The implications of yield expectations on the outlook against the US Dollar and the British Pound are murkier: the Fed and the BOE are both expected to hike rates over the coming year as the economic downturn begins to lose momentum, but the magnitude of priced-in increases (39 and 56 basis points, respectively) would still put borrowing costs below those of the ECB assuming Trichet holds at 1.50% as expected through the same period. On balance, it seems the Euro is unlikely to be much of a beneficiary from a possibility of higher overall interest rates a year from now as deep economic turmoil continues to keep the market’s focus on safety rather than return.