Last week we saw sterling remain firm against the euro despite further poor data, the market reached a peak of 1.2752. In with all the poor data that we saw, we had Hometrack reporting on Monday that house prices in England and Wales fell for the eighth month in a row in May, down 1.9% from a year earlier. The BBA (British Bankers Association) reported on Tuesday that mortgage approvals had dropped nearly 40% y/y in April, making it the second weakest April on record. On Friday we had the German GFK survey out which showed further unexpectedly deteriorating consumer morale in June. David Blanchflower (BoE policymaker) said that ever growing oil prices are the cause of rising inflation, but policymakers will have to “grin and bear” it for now.

In May we saw the Eurozone inflation rise to 3.6%. Despite this we expect to see the Eurozone interest rates remain on hold amid expectation of slower growth and decline in consumer confidence.

With the following week we have various data due, the major one being the BoE and ECB interest rate decisions which are due out on Thursday. However we expect to see the BoE also hold their rates. Many people will wait to hear Jean-Claude Trichet’s ECB statement after the rate announcement to hear of any future expectations, although it is not expected to be a very hawkish one.

If the ECB was to deliver a very hawkish statement then we could see the Euro strengthening against the Pound, pushing it back down towards 1.22 (82p per Euro). Even with high inflation forcing the BoE to keep its rates on hold for now, we still expect to see the Pound weaken against the Euro. Having already seen a 1.5 cent drop since Friday afternoon, and further drops expected, now is a good time to secure your Euros, before the rate gets lower.