Sterling had a good week gaining ground against most other currencies. A few reasons for this. Firstly a recovery from what is viewed as an over reaction by the market to poor UK gross domestic figures on the previous Friday. Secondly the UK data last week was reasonably positive with increasing house prices and improving consumer confidence. This week we have the Bank of England meeting. The market will await with interest their announcement on the quantitative easing programme and whether or not they are going to increase the total amount from £175bn. Last time they increased the amount it was very negative for sterling and common sense would say the same would happen this time, although it has to be remembered that common sense doesn't always apply in the currency markets, especially as other countries such as the US are looking to stop their equivalent programmes. So we wait to see what happens on Thursday.
The euro still holds favour when compared to sterling and the US$ and certainly the European Central Bank has been highly effective in adding liquidity to the market. It currently sits at €1.1076/£1 inter bank. However the strong euro is hurting the euro land economies especially exporters. This week the European Central Bank meets and the expectations are for interest rates to be kept on hold. What will be interesting is seeing what they announcement on interest rates. The markets have always though they would hold interest rates for a shorter period than the UK and the US but market rumours are beginning to circulate as to whether or not this will be the case. If the ECB come out and indicate that it will be for as long a period as others then we could see some weakness form the euro.
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