Sterling was marching steadily higher through mid October until we hit a major stumbling block on Friday 23rd. Third quarter growth figures didn't show any growth at all. In fact the economy contracted by 0.4% instead of the 0.2% expansion that analysts were expecting. That prompted a vicious sell off, sending the pound two cents lower almost immediately. Last week was somewhat better as the stock markets finally entered correction territory, sending investors scurrying away from high yield currencies and into more defensive plays including the dollar and pound. By Thursday/Friday the previous week's growth shocker was looking more like a blip as sterling rose to new six week highs against the euro. Much now depends on the Bank of England meeting this Thursday (November 5th). It seems to have come around very quickly after they elected to keep interest rates and quantitative easing on hold in October. Another "no change" vote would certainly help sterling's cause this week, especially if the subsequent meeting minutes (usually released a few days later) show another 9-0 vote.

The short term technical outlook is positive despite today's weakness. Overcoming the growth data blip was a major development from a sentiment viewpoint, showing that the market is paying less attention to negative newsflow. "What should go down and doesn't go down can only go up" is a favourite market proverb that fits the picture. However, there can be no guarantee that sterling will continue to rise, and the best advice we can offer is to cover half of any euro requirement now, and take a "wait and see" approach on the balance. If you are selling euros, you may want to consider covering your trade now to avoid the risk of further upside in the exchange rate. We are still trading relatively close to the lows, and the risk appears to be to the upside in the short term.