Sterling ended last week higher against the Euro

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Sterling had a mixed week as important data was released during the course of last week. There was a positive start following Tuesday's consumer price index (CPI), which beat market expectations for 4.1% at 4.5%, boosting Sterling above £/$ 1.63 against the US Dollar in anticipation that rising inflation with force the Bank of England to raise interest rates. The reality soon set in that inflationary headwinds remain of little concern for the Bank of England at the moment.

Traditionally high interest rates would lead to an interest rate increase, therefore aiding Sterling, however household incomes are being squeezed harder and harder making the question of timing ever more crucial. Despite UK retails sales climbing 1.1% in April, the markets showed little interest and Sterling remained subdued, trading in tight ranges against the US Dollar and Euro as the week ended.

Compared to the Euro, Sterling had a great week. Protests in Spain, further problems for Greece and noises from the European Central Bank about collateral rules kept the Euro firmly on the defensive. Any rallies in the Euro petered out pretty quickly as another piece of negative fundamental news was released.

The Euro is on the back foot already this morning following Standard & Poor's (the credit ratings agency) downgrade of Italy's credit rating to negative on Saturday.

This week many eyes will be keen to see whether UK public sector borrowing figures will decline on Tuesday, showing signs that the Government's austerity tactics are working on at least one front.

There will be a lot of attention on the revised first quarter GDP's figures from the UK and US on Wednesday and Thursday respectively. There will also be interest in the UK May consumer confidence, where improvements are hoped for, although recent figures for consumer confidence suggest this is more of a struggle.

In the US, the end of the week sees personal income/spending figures for April, consumer confidence for May and pending home sales for April all released. Such releases ought to offer the US Dollar some positive momentum but are unlikely to alter interest rate expectations.