Sterling fell against most currencies during last week. After Thursday's meeting at the Bank of England (BoE) brief signs of a fight-back were seen as sterling rallied sharply against most major currencies but this only proved to be a blip as rates fell again on Friday. Sterling has continued to fall at the start of this week. The BoE's decision to keep interest rates on hold was of no surprise to the markets. However the surprise was the BoE's decision not to increase the amount of funds available from the £125bn already allocated for their programme of quantitative easing. The reason for this is they need some feedback on what affect the programme has had to date. This week they will get some feedback as we have a raft of economic data out including inflation data tomorrow and on Wednesday unemployment figures. Today we see some data on UK retail sales. I suspect sterling will continue to be under pressure given the very high levels of UK government debt and the lack of any clear and concise plan on how to bring it down.
The € sits at €1.151/£1 inter bank. Significant Eurozone GDP figures last week demonstrated a contraction within the euro economy for the fourth consecutive quarter. However, as the figures were really only as bad as expected, the news of an improvement in German factory for June orders helped to support the euro and maintain its recent positive trend against the pound. A forecast last week from the IMF suggested that any upturn in Eurozone activity over the coming year will be very moderate and gradual. This fits with the position of those trying not to be carried away in looking for the end of the current down-turn and to for now just be satisfied that the rate of the downturn is finally easing. This week we have inflation data for the Euro zone. We also have surveys from Germany on economic and business confidence which should make for interesting reading.
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