Sterling isn't as friendless as it was last week. Still not the belle of the ball but at least the occasional glimmer of interest. The fate of sterling was more influenced by what was happening elsewhere rather than here in the UK. Still significant problems given the parlous state of the UK economy and the Bank of England has a difficult balancing act between fighting inflation and helping the economy. The market still expects the BOE to reduce interest rates to help the economy but the BOE needs to use UK interest rates to fight inflation. The housing market continues to suffer and the retail performance over Christmas was very mixed. Hopefully last week was the week where sterling found a base against other currencies. The only fear is that something nasty similar to Northern Bank comes out of the woodwork!
The first chink in the €'s armour, which is sitting at €1.343/£1 inter bank, with the head of the Luxembourg central bank saying that given the current circumstances the European Central Bank may have to be more flexible on interest rates. This statement was quickly withdrawn but I think most would concur that it showed common sense rather than blind faith. However the ECB wants to present a clear position as wage negotiations are currently underway and the ECB wants any agreements reached to be non inflationary. Once the wage negotiations are over the ECB may become more focused on the Euro land economy. However, for the moment the € is still the preferred currency when compared to sterling and the US$.
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