The widely expected interest rate cut by the European Central Bank on Thursday (5 June) will be the talking point in the market this week.
While the ECB is expected to cut rates by 25 or 50 basis points, from the current 2.5 per cent, the Bank of England is forecast to hold firm when it meets the same day.
Ian Stewart, chief European economist at Merrill Lynch, said slowing economic growth, rising unemployment, weakening consumer spending and the appreciation of the euro against the dollar point to the right conditions for a rate cut.
Mr Stewart said Merrill Lynch uses a rule of thumb analysis to correlate currency moves with interest rates, which is a six per cent change in a currency relates to a one per cent move in interest rates.
"The euro has risen 2.6 per cent on a trade weighted basis since the last (ECB) meeting, which almost equates to a 50 basis point cut," he said.
