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By Jake Trask at  UKForex, an international money transfer service.

Sterling started the week with a bang, with cable hitting 1.6820 during Asian trading in the early hours of  Monday  morning. The main reasons for this were improving sentiment surrounding the UK economy, as outlined in last week’s Bank of England Inflation Report, and worse than expected data releases from the US. Cable was also helped by a public holiday in the States which meant thin trading  on Monday.  

The rally was short lived however. By the start of London trading, cable was back under 1.6750. Sterling slipped back a little further on Tuesday’s worse than expected CPI reading, which printed at 1.9% (exp 2.0%). Cable slipped but found support around the 1.6660 level.  

A relatively poor week of Eurozone data started  on Tuesday,  with an underwhelming German ZEW Economic Sentiment survey result printing at 55.7 (exp 61.3). The euro remained well supported because of the recent poor US data, and EUR/USD found support at the 1.3690/1.37 level which held firm.  

Wednesday  saw the release of BoE minutes from the MPC’s recent meeting, which remained cautiously optimistic about the UK economy in 2015, though the usual comments about spare capacity within the economy were there. The big news however was an unexpected uptick in the UK unemployment level from 71.1% to 7.2%. Cable, which had been trading at 1.6725 gapped 50 pips to 1.6675 and the losses extended through to lunchtime, with cable finding support around the 1.6640 level. GBP/EUR tested support around the 1.21 level on the back of this news.  The release wasn’t all bad, though, as it showed more people in work in the UK than ever before, with jobless claims falling 27,600 in January.

Wednesday  evening saw release of the minutes from the recent FOMC. The Fed, as expected, kept rates on hold but the dollar found support on the hawkish assessment of the US economy with members saying growth in the second half of 2013 had been stronger than anticipated. Inflation forecasts were slightly more bullish than expected. This, combined with no hints at a reduction in the current pace of tapering (-$10B per month), meant the minutes were dollar positive.  

Wednesday  night saw Chinese Manufacturing PMI come out worse than expected, weighing on the Aussie and Kiwi. The release printed 48.3 (exp 49.4) with AUD/USD dropping .90 to .8950 almost immediately with the NZD/USD mirroring the drop from .8280 to .8245.  

Thursday  morning saw virtually all the monthly eurozone PMIs come out worse than expected, with German Manufacturing coming out  much  worse than expected at 54.7 (exp 56.4). EUR/USD dropped from a high of 1.3760 down to 1.3690 throughout morning trading in London. Later in the day, MPC member Martin Weale give the clearest indication yet of when UK interest rates were likely to rise in an interview with Sky News. He said that an interest rate rise in Spring 2015 was “the most likely path”, with the possibility it may be brought forward if the gap between wage increases and inflation continued to narrow.  

At the time of writing, the markets seem to have shrugged off  Friday  morning’s worse than expected UK Retail Sales release, which printed at -1.5% (exp -0.9%) with cable retracing its losses back from 1.6620 to 1.6670.  

Further reading: Pound dollar forecast.