End of a another torrid week for the Pound

The Pound has endured another
torrid week. Comments made by the Bank of England governor Mervyn
King were the catalyst of the move lower against the Dollar, where
we hit a six month low, and the Euro. But I would suggest it was
merely confirmation of what we all really knew, the UK economy is
slowly getting better, but it will a long and frustrating journey.
The reason we are now at new lows is because higher inflation is
being tolerated explicitly by the bank in pursuit of growth, and
because “rebalancing via external demand” was twice quoted in the
inflation report and the market has interpreted that as the BoE
pursuing a lower exchange rate to achieve this.

The Euro and Dollar remain locked
in an arm wrestle. Disappointing GDP numbers yesterday from the
Euro zone has pulled the Euro slightly lower, but the combination
of large inflows back into the Euro up against a US economy slowly
recovering is keeping both currencies well bid.

The outlook for Sterling next week
should be slightly more stable, but the Bank of England and Federal
Reserve both publishing their respective minutes on Wednesday from
earlier this month there is scope for movement. However, with no
change in policy or outlook expected from either a brief pause for
Sterling is more likely at this stage. Other key data next week is
both German and US CPI & PPI in the middle of the week.