F/X weekly comment

Another respectable result on the forecasting front, with sterling spending most of the week languishing in the 1.12s. We started at just over 1.13, and that's where we've ended up, but it didn't take long for sterling weakness to surface:

Minutes

The minutes from the last MPC (no, that doesn't stand for Merv's pathetic crew) showed that none of the six members to vote against an interest rate rise at March’s meeting had changed camps to vote for a rate hike at this month‘s meeting. The devil hidden in the detail of the minutes caused further selling pressure on the sterling, as apparently there were discussions leading to a statement that a rise in interest rates in the near-term would "adversely affect consumer confidence, leading to an exaggerated impact on spending". The market unsurprisingly pushed back their expected date for a rate hike accordingly.

Sales

Figures released on Thursday showed that UK retail sales rose unexpectedly in March, helped by stronger food sales. The ONS (Office for National Statistics) said retail sales volumes including fuel rose 0.2 percent last month, against forecasts of a 0.5 percent fall. Overall though this does little to alter a picture of fragile consumer demand that is deterring the MPC from raising rates. Other figures showed government borrowed slightly lower than forecast in the 2010/11 fiscal year, but this is not expected to change the coalitions view of the necessity to continue with stringent public spending cuts.

Euronews

The Euro's strength this week was helped by a strong Spanish bond auction which is helping Spain's cause in their quest to be divorced from the PIGS. And to be fair, they are the only one of the four not to have received a bailout so far. Spreads in Greece, Ireland and Portugal continued to widen, probably because of lingering worries of a possible early Greek debt restructuring. It does seem though as if the Euro is starting to shrug off these concerns, and if there are no more scares over the weekend, we could see further strength from the Euro against the pound.
For that reason, I'm afraid I see more despondency for sterling over the coming week, and I'll be surprised if we hang on to the 1.13 level.