The British Pound is trading flat to slightly higher this morning after it was reported that the U.K. economy unexpectedly contracted in the final quarter of 2010. Fourth-quarter gross domestic product declined by 0.5% compared to the previous quarter. This was the first decline since the third quarter of 2009. The report also severely missed pre-report forecasts calling for a 0.4% rise.

The rebound in the U.S. equity markets indicates that stocks are poised to move higher. Although the Fed told us nothing that wasn’t already built into the market, the fact that more liquidity was made available shouldn’t hurt equity prices. Stocks could also benefit from an improving economy especially if Friday’s U.S. employment data comes out better than expected.

The EUR USD is retreating this morning, after an initial surge, on renewed concerns about the impact of the Euro Zone’s sovereign debt woes.

The Euro was up early in the Asian trading session, boosted by week-end remarks by Chinese Premier Wen Jiabao.

If overnight trading action is any indication then look for U.S. equity markets to open lower. The lack of buying interest overnight is most likely a reflection of short-term overbought trading conditions and the lack of fresh economic news. The Dollar is still under pressure against the Euro and British Pound, but equity traders are a little disconnected from this move this morning.