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An upgrade to European growth prospects twinned with a call for ‘strong vigilance’ towards price pressures saw the euro smash higher against its crosses. Jean Claude Trichet’s speech is always closely monitored for coded references to when monetary policy may change. The market seized on the ‘strong vigilance’ line as it has, in the past, meant that rates will rise in the next 2 months. This was almost confirmed by the omission of the line that ‘rates are appropriate’.

Granted the single and solitary mandate for the ECB is one of price stability however we cannot help but feel that the ECB is being somewhat naïve in pushing for these changes while Portugal and the other PIGS are still in a perilous position. Portugal looks likely to receive a bailout in the next few weeks while Spain received news of an unemployment rate of 20.2% yesterday; not a jobs market that needs an interest rate rise Jean-Claude.

So the euro pressed sterling back into the 1.16s and hammered the dollar towards the 1.40 level, a 4 month high. Sterling was hurt by a poor services PMI figure and while we’ve seen increases for the construction and manufacturing sector in the past few months the services sector, which makes up 70% of the UK economy, dipped in February. This is not something that can be blamed on the weather however, as it is a simple lack of consumer confidence that is causing the people in the street to not spend money. The new fridge and TV can wait while prices increase and the jobs market still looks perilous. It seems that the VAT increase was lost in price discounting in January but consumers may have also used this as a reason to keep their wallets in the pockets. This will come as a blow to the coalition and also will fade hopes of a near term interest rate increase from the Bank of England.

The dollar has also remained weak even after strong initial jobless claims and good ISM numbers ahead of today’s Non-Farm Payrolls number. The data is expected to improve, with expectations of a gain of around 200k, putting it at 5 consecutive monthly gains although how they match against expectations are far from correlated.

We expect the market to be quiet into the announcement at 13.30 although we have just had UK Halifax house prices for the month of February which have disappointed to fall by -0.9%.

 Latest exchange rates at time of writing