The Euro has remained in a dominant position against the Pound again over the last week, following the maintained tough stance from the ECB on inflation and interest rates. Indeed, as widely expected, the ECB left base rates unmoved at 4% last Thursday, with President Trichet mentioning both upside inflationary risks and downside growth risks as key issues to be monitored closely.

As far as other data from last week is concerned, there was certainly some weakness demonstrated, with EZ retail sales falling 0.4% in March and the annual figure therefore falling by 1.6%. Furthermore German factory orders fell by 0.6% for the second month in a row, leaving an annual decline of 5%. These are a concern to the Euro Zone chiefs, as although there are improving labour markets and wages, it appears the consumers are becoming reluctant to spend which could spell longer term problems for the economy and currency.

However, these apparent weaknesses may not be enough to nudge the ECB out of its current wait and see policy, and we believe the ECB will leave rates on hold for several more months while events unravel. In the meantime, UK bearishness should keep the Euro strong over the Pound.