Last week was a frustrating week for sterling. Monday started positively with the pound making marginal gains on most major currencies thanks to surprisingly positive figures regarding UK house prices. However, following Tuesday's much worse-than-expected UK GDP data which showed the largest contraction in the UK economy for over 50 years, the pound started a downward trend which lasted through the week against the US$. Risk aversion played some part in the large losses for sterling as the positive sentiment that had been growing over the last ten or so weeks fell away and reminded us all that we are far from seeing the end of the recession or the economic problems associated with it. This week we have a range of UK economic data with May industrial production and manufacturing production figures being released on Wednesday and on Thursday we will hear again from the Bank of England after their meeting on interest rates. Once again the expectation is for no change on interest rates but as with recent months it will be the comments from the members of the Monetary Policy Committee and the market reaction to their very cautious tone that may put sterling on the back foot once again.
The main focus for the Eurozone last week was the European Central Bank's (ECB) decision on interest rates with the outcome a much expected hold at current levels. The accompanying statements were also familiar to recent months' meetings with little sign that policy will take any sudden change of direction. The ECB's outlook for Europe seems to be consistent with recent views that contraction in the Euro-economy will continue throughout 2009 and potentially well into the second half of 2010 seemingly opting for a slow and steady reaction to the rate of decline in productivity. Euro-zone data out this week includes finalised first quarter euro zone GDP figures and German data on trade and inflation. Again steady improvement is expected.
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