Sterling slumps against the Euro despite another Irish bank bailout

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Yesterday saw the Sterling sellers re-emerge as Sterling looked like it would close the first quarter below £/€ 1.13 against the Euro. It didn't quite get that low possibly because of yet more evidence, this time from the Irish banking sector, that the troubles in the Eurozone are far from over. The Irish government's bank stress tests revealed the Irish banks are well short of being re-capitalised and were subsequently provided with a further €24 billion to shore up their balance sheets.

With Portugal standing on the brink of a bailout, having already removed the ruling Government from power, we can expect further problems within the European banking sector to continue. It is hardly the backdrop for the European Central Bank to start raising interest rates, but there remains a significant portion of the ECB who seem determined to do this, which is the main reason why the Euro remains at such high levels against Sterling and the US Dollar.

The Eurozone CPI inflation data provided support to the ECB for a rate hike, increasing by 0.2% to 2.6% in March from 2.4% in February, the highest level since October 2008 and above the ECB's 2% target.

Sterling hasn't been able to shrug off investors' disappointment at all this week at the assumed postponement of a UK interest rate increase. Other than the Nationwide's report of higher house prices there were no UK economic statistics yesterday and the Nationwide number wasn't enough to prevent further Sterling slippage.

It seems investors have the October 2010 low of £/€ 1.1180 in their sights now unless there is a good reason why not. For Sterling bulls, that wish could be achieved next Thursday lunchtime, if the ECB decides there will be no interest rate increase.

Elsewhere, Australian retail sales were stronger than expected yesterday, boosting the Aussie Dollar. For those buying or selling australian dollars, note that the it has now recovered more than 10 cents since the decline brought on by the Japanese earthquake.

Today is all about the payrolls from the US. The March figures are expected around 195,000 net new payrolls with another fall in the unemployment rate possible. Such news is unlikely to move the markets, but if the gains in payrolls are larger than 240,000 it should see a stronger US Dollar. Also due out today is a whole host of manufacturing surveys from the Eurozone, the UK and the US, all of which should point to robust activity.