F/X weekly comment

Any chance I could delete the last line of my article last week? You know, the one where it says sterling at 1.1500 for me next week. At least it keeps my success record intact. At the start of the year I very nearly started a system whereby I could measure my forecasting acumen by doing a series of trades with one of the online dealing companies. Basically if I got it right I made a profit, and if not, a loss. I'm very glad I didn't start that. I think I'd be in a similar position to Portugal by now - in need of a bailout.

Euro fiction
It was the eurozone which made all the headlines this week, starting with a March inflation figure jumping to a higher than expected 2.6%. This boosted the ECB’s case for increasing rates next week as it has no doubted fuelled concern that prices are being driven by higher energy and commodity prices. The chances are that the ECB will raise interest rates by a quarter of a percent next Thursday. Germany’s unemployment level fell twice as sharply as expected in March which confirmed the steadily recovery of the jobs market.
The results of the Irish banking stress tests were fairly awful this week. The Irish Central Bank said that the tests show the four main banks will need to raise 24 billion Euros in extra capital. This would enable the Irish banking system to withstand any possible losses if the economy worsens. Meanwhile, Portugal is not having much fun, as revised figures on Thursday showed the country’s deficit was still rising. Prime Minister Jose Socrates resigned last week after parliament rejected a new round of budget cutbacks leaving the country in limbo. Furthermore, the interim government on Thursday revised figures showing the deficit was more than a percentage point above target at 8.6 percent of gross domestic product. The Spanish retail banking sector could be the next area of concern for the ECB, with a number of Cajas already facing severe funding problems.
You would think that this would push sterling back up against the euro but in fact the opposite has happened, even positive house price data couldn’t save the dear old pound at the moment thanks to the EU interest rate suspense.

Sterling fact
Growth data out yesterday for the last quarter of 2010 was slightly better than expected at –0.5% but the market will now be more concerned with GDP data for the first quarter of 2011 due at the end of April. With the minutes of the last meeting of Merve's clan showing no extra appetite for UK interest rate rises, the likelihood is that we will have to wait until July or August for a rise.
U.K. house prices rose unexpectedly for a second consecutive month in March, but weak mortgage-lending figures and an expected rise in mortgage rates suggest that a sustained recovery in prices is doubtful because of the many pressures buffeting the economy, including continued rises in unemployment and inflation, and very poor readings of household confidence.

So?
Skip last week's forecast, I'm going back to the previous week. Watch out for the 1.1200s.