The European Central Bank (ECB) faced official demands this week to cut interest rates. The IMF said that growth in the euro area "will remain sluggish", and called for "more monetary easing". With ECB officials' efforts to talk down the euro having failed, many economists expect them to take this advice.
Although there's talk of the ECB adopting quantitative easing, Patrick Legland at Societe Generale thinks this would be a last resort, and that the ECB would cut interest rates - possibly to negative rates - before printing money. Negative rates, however, could well weaken the euro.
Something else might also boost sterling - the strength of the UK economy. The British Chambers of Commerce this week reported high and rising sales by both manufacturers and service companies, and official figures showed a stronger-than-expected rise in manufacturing output in February. This "could be a boom year for UK manufacturers", says Chris Williamson at Markit.
Any rise in the pound would help to hold down inflation. Next week's figures are likely to show manufacturers' raw materials costs fell by around 6 per cent in the last 12 months, a trend which could continue if the pound rises. This in turn means there's no pressing need for higher interest rates yet. Nick Bate at Bank of America Merrill Lynch says the Bank of England "might not seriously start to consider raising interest rates until at least late this year".
