On Thursday of last week the Bank of England kept interest rates at 0.5% and maintained the level of emergency funding at £200bn which was as expected. In the wake of strong festive sales data from John Lewis, J Sainsbury and Next; increased house prices and stronger UK consumer sentiment many feel that the UK economy has turned a corner. However, this data may be a seasonal “one-off” and consequently the Bank is adopting a ‘wait and see’ approach. The BOE also have to be wary of political uncertainty in the run up to the election. This week we saw an attempt by former Labour ministers to push Gordon Brown out. The attempt was unsuccessful but was a major factor in sterling losing ground. This week we have UK retail figures out for December which are expected to show a 2.5% improvement. Although I suspect we will see a pull back in January not least because of the snow. A reducing trade deficit is also expected for November on improved exports.

The euro sits at €1.111/£1 interbank. This coming week we have the European Central Bank meeting who are expected to keep interest rates on hold. Anything else will be a complete shock. In the euro zone, economic data released during the last week failed to push the euro in any particular direction. Consumer confidence rose to an 18 month high, German exports rose more than economists forecast yet actual consumer spending in the euro zone dropped by 1.2% in November – equalling the biggest drop on record. Against sterling the euro continues to move in a fairly narrow range awaiting some catalyst to push it one way or the other. This week we have euro zone industrial output released which is expected to show a continued improvement but it only means that the fall in output has only reduced to 7.5% rather than 11.1%. Still very high.

For more information on the euro or to request a quote, go to: http://www.smartcurrencyexchange.com/euro_exchange_rate.aspx

At the start of last week, sterling performed poorly due to a rather gloomy outlook going into the New Year over concerns over the UK economy and rising public debt. However, UK economic data came in better than expected during the week as the Nationwide Building Society announced that the average house price has increased by 0.4% compared with November. This was more than analysts expected and as a result indicates that the UK may be starting to pull out of the longest recession on record, as this is the largest rise in house prices for 2 years. Whilst this certainly doesn't spell the end to the UK's troubles, it is a welcome piece of positive news that has been noticeably absent over the last few months.

This news prompted a sterling rally against the US$ and the Euro as many analysts said what we have all been thinking for a while – that sterling is far too undervalued against those currencies. The next major event on the horizon for sterling is the Bank of England meeting on the 7th January where all eyes will be glued on the policy report to see when the Bank is likely to scale back the programme of quantitative easing – any sign of this and we will see strengthening of the pound.

The € sits at €1.127 inter bank having lost ground against sterling during the course of last week. This poor performance against sterling was as a result of data released that showed that loans to households and companies had fallen for a third straight year and clearly demonstrates the fragility still prevalent in the Eurozone recovery. Whilst Europe's economy emerged from recession in the third quarter, this data shows that the banks are still reluctant to lend despite being pumped full of cash by the European Central Bank and suggests that a return to sustained growth and recovery may take longer than was first envisaged.

For more information on the euro or to request a quote, go to: http://www.smartcurrencyexchange.com/euro_exchange_rate.aspx