Last week the Euro lost ground against Sterling towards the end of the week. Primarily this was due to comments from the Luxemburg Prime Minister ‘ Junkers’, who was speaking to Eurozone finance ministers and suggested that the appreciation of the Euro is ‘undesirable’ and is ‘weighing on the Euro’.

Eurozone inflation data last week showed figures reached 3.6% in March, up from 3.3% in February and considerably above the target of 2% This suggests that interest rates are very unlikely to be cut as this would encourage spending and would more than likely see inflation rise further. However, if they raise interest rates it will most likely strengthen the Euro currency against the Pound and the Dollar which is damaging their export industry as exports become too expensive for those buying them. This is especially so as their two biggest trading partners are the US and the UK.

Therefore it looks very much like the status quo will remain and interest rates will be kept on hold in the Eurozone - at the very least until the next quarter.

The comments by Junkers, despite the valid points they raised, highlights the fickle nature and the volatility of the currency markets as the GBP/EUR moved over 2% without any real market data or political decision actually taking place. Since then have also seen the market recede almost back to the same position as we were last week before the comments by Junkers were made.

For the time being sterling is expected to remain the underdog against the Euro especially as we are expected to see further rate cuts in the UK in the near future, and certainly before we see any interest rate change in the ECB.