Last week we saw sterling hit a four-week low against the dollar after a rise in U.S consumer prices keeping investors focused on inflation, boosting the dollar on the view that the U.S interest rates may rise in the future. The consumer prices were helped by the soaring gasoline and energy prices. U.S consumer prices rose 0.6% in May, which was more than the forecasted 0.5%, CPI was at 4.2% higher y/y than the expected 3.9%. On Tuesday Federal Reserve chairman Ben Bernanke made further hawkish comments, saying that the risk of a sharp slowdown in the US economy has been avoided.

According to the University of Michigan, US consumer confidence hit another 28 year low in June, the index came out at 56.7, down from 59.8 in May, but pending home sales in April were released on Monday at 6.3%, much higher than the expected -0.5% therefore we may have seen the worse from the US.

Due out on Wednesday are the BoE minutes, which we are expecting to signal further rate cuts due to the poor credit crunch later in the year. The BoE are in a difficult position, with accelerating inflation and slowing economic growth. This is putting Sterling under increasing pressure and with the US looking to possibly increase their interest rates it is expected for Sterling to weaken against the Dollar forcing the rate to drop.