Listen
Yes,OK,I can hear the fat lady singing. I think we can say with a fair degree of certainty that sterling will not end the month at 1.2300 or anywhere near it. Definitely a mugs game this f/x forecasting! Sterling has taken a big hit this week after a series if body blows from market data releases. The latest was a big drop in consumer confidence, indicating the latest round of government spending cuts and the VAT rise is hitting consumers where it hurts most – in their pockets. This was the sharpest fall since 1992 and the lowest reading in nearly two years.
Before that we had an absolute shocker of a GDP number which showed that the UK economy not only failed to grow I the final quarter of 2011, it actually shrank. For a while some of the optimists amongst market commentators pointed at the adverse weather conditions, but Germany’s weather was the same as ours, and their economy grew strongly in the same period.
Speaking of Germany, I’m writing this article in a hotel room in Berlin. Germany is impressive. Big and strong. They don’t do things by halves here. There is a fishtank in the lobby. Nothing very impressive about that? Well this fishtank has 1500 tropical fish in it. It holds 1.5 million litres of water. It is conical, 20 metres high, and the lift goes up through it. That is one big fishtank. Germany is like a big merc or a beamer. By comparison France is a clio, and I’m very much afraid that at the moment the UK is a Nissan Sunny, without the sun.
The markets are likely to be wary of the possibility for further poor UK data in the coming weeks, watching closely for signs that coalition austerity measures are putting too much of a strain on the economy. They will also be looking for clues as to monetary policy as rising inflation becomes an ongoing concern.

Reasons to be cheerful?
One
Germany is one side of the euro story. If all the member states were as strong the euro would be invincible. Thankfully , they’re not.
Two
It won’t take much more poor economic data and inflation fears to bring UK interest rises back into the picture, and that may help sterling.
Three
As bad as this week has been, we still have sterling over 1.1650. That is really quite surprising (to me anyway), and quite reassuring. Supply and demand decides rates, and there is apparently enough demand for sterling to keep it’s head above water.
Not too much happening his week, which could be a problem for the pound. No news is not necessarily good news, and rumour can be more harmful than fact. I think we will do well to consolidate above the 1.1500 level this week, but I think it will happen, and I’m looking for 1.1725 by next Friday.