Sterling had a mixed week last week, holding its own against the €, gaining against the US$ and losing ground against the commodity backed currencies. Mid week the Bank of England released its quarterly inflation report which showed that inflation was unlikely to reach the target rate of 2% for a number of years. The report did show that the BoE was expecting an improved growth in the UK economy over the coming years than previously forecast. The overall reaction of the market was sterling negative especially when the Governor of the BoE decided to comment. He highlighted that the major concern remained the spare capacity that exits in industry and the labour markets. But by the end of the week sterling had managed to reclaim lost ground against the € and the US$. This week we have the release of retail and inflation data for October. Retail sales are expected to show a modest increase and inflation an increase and continue to be over the 1% level on the back of increased food and energy prices.
The euro sits at €1.117/£1 inter bank. Last week we had the release of growth figures for the euro zone. Overall there was growth which was the first quarter's growth after 5 quarters of decline. Germany, France and Italy showed growth whereas Spain continues to decline. And I would bet we see the same trend in the quarter we are in as we all know how Spain became very dependent on the building industry which has ground to a halt. The European Central Bank still views the strong euro as a worry and as such will be keeping interest rates low for a while. This week we have the release of the inflation figures for October for the euro zone which is expected to show a slight fall over the last year.
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