Britain loses its AAA crown

After a difficult mid-week fall for Sterling when dovish BoE minutes were released, the pound started to strengthen on weaker than expected LTRO payments and an impending Italian election in the euro. Then came the downgrade to the UK's credit rating, from AAA to AA1 from Moody's, during Friday's trading session to spark another run on Sterling with the currency losing all gains against it major trading partners. GBP/EUR stalled at 1.16 during the week and finished in the 1.14s, with EUR/USD struggling to stay above 1.31 after a small range traded week and GBP/USD going as low as 1.5131.

A poor end to the week has spelled a difficult start during Asian trade for Sterling as the currency continues to struggle. Chancellor George Osborne testifies about banking standards today to parliament with curve balls about the recent downgrade expected which will give him plenty to think about for his next statement in March. Wednesday's adjusted GDP figure is expected to remain at -0.3% in line with preliminary data from earlier in the month.

After continued strength last week, markets have a few things to note this week. Tuesday, US new home sales are expected to continue their positive rise. Wednesday, durable goods orders expected to show minimal growth at 0.2% from 1% last month. Pending home sales also expected to show growth at 1.6% versus a contraction last month. Thursday, the initial jobless claims figure is expected to show a minimal fall and the GDP figures is expected to come in at 0.5% versus contraction last quarter. Friday, sees the final Michigan Consumer Sentiment figure and ISM manufacturing index.

Last week's euro strength on German business sentiment is over; the Italian election has bought fears back to the euro as the possibility of disgraced ex-PM Silvio Berlusconi returning to power could become reality today and undo the austerity measures put in place by current Prime Minister Mario Monti. The election will be closely watch throughout the day and Monday evening as speculation and results emerge to indicate who will take the reigns. Other data this week we have Eurozone and German CPI expected 2% and fall to 1.6% respectively on Thursday.