It was a busy week for the euro. Initially it advanced by nearly a cent then retreated all the way and more, allowing sterling to climb a cent higher to Tuesday morning’s peak. Thereafter, things went almost entirely the euro’s way and when London opened this Friday morning the pound was nursing a one and a half cent loss on the week. Against the US dollar the euro was virtually unchanged.

There were four notable lurches for the sterling/euro exchange rate. The first was provoked by a disappointing UK manufacturing sector purchasing managers’ index (PMI). At 47.9 it had nothing going for it; it was below the previous month’s reading, below forecast and below the dividing line at 50 which separates growth from contraction. Quite reasonably, investors punished sterling for its transgression, sending it a cent lower.

Slightly less reasonably, investors saw nothing amiss with an identical 47.9 reading for the euro zone manufacturing PMI, their logic being that it was exactly in line with forecasts. This was typical of sterling’s ill fortune almost throughout the week: heads, it lost; tails, it didn’t win. That said, after Friday’s kicking the pound did manage to make back Friday’s lost ground, helped by the British Retail Consortium’s Retail Sales Monitor which delivered the strongest reading for sales since May 2011.

Later that day came the second lurch. Having primed themselves for further disappointment from the UK services sector PMI, investors were pleasantly surprised when it came in at 51.8, a quarter of a point higher on the month and nearly a point better than forecast. The knee-jerk buying reaction was worth half a cent or so against the euro but there was no follow-through and by early afternoon sterling was looking soggy again. The pound continued to move lower on Wednesday and fell further on Thursday morning ahead of the Bank of England’s monthly policy announcement. Although the “official” consensus was that the Bank would sit tight with its 0.5% Bank Rate and £375bn of asset purchases, the suspicion was that the Monetary Policy Committee might decide to increase that £375bn stock of government bonds.

That suspicion prepared the way for the third lurch, when the Bank announced at midday on Thursday that its policy was indeed unchanged. The relief rally took sterling three quarters of a cent higher. Sadly, its modest triumph was short-lived.

The fourth lurch came little more than an hour later when European Central Bank President Mario Draghi held his monthly press conference. Unlike his opposite number at the Bank of England, Sig. Draghi makes a habit of being upbeat about his currency. Whilst accepting that an interest rate cut had been mentioned during the monthly meeting of the ECB Governing Council, he said there was no real pressure for such a move. As for the political deadlock in Rome, he refused even to discuss the possibility that it might have ramifications for the euro. During the hour-long press conference the euro strengthened by a cent against the pound and the US dollar.

As the weekend approaches, it seems that investors are taking the pound slightly higher as they take profits on their short-sterling positions, returning it to the middle of the range it has occupied for the last three weeks. It would be wrong, however, to see such a rally as a sign of renewed confidence in the pound.

Next week Tuesday is potentially the most critical day for investors’ perception of the UK economy and the pound. Almost every one of the week’s economic statistics come out in a single burst: the trade deficit, manufacturing production and industrial production. Any or all of them could be a let-down. If they do disappoint, the market will not be forgiving and investors will have another excuse to punish the pound.

The pound against the euro is currently at the lowest level since February 2012!

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