Sterling fell against a broadly firmer US dollar this morning, as confidence over the European debt crisis began to wane, following indecision between EU policymakers over how to tackle the issue.
EU finance directors will meet later today and investors are hoping that officials will shed more light on two issues: one, on whether the size of the current €750 billion European bailout package will need to be increased, and two, whether a joint European government bond issue, dubbed 'e-bonds', is feasible. A barrage of UK economic indicators is due for release this week and uncertainty over the data is also weighing on GBP/USD. Tomorrow, UK industrial and manufacturing production will be released, along with the BRC retail sales monitor. On Thursday, the Bank of England's interest rate decision and the trade balance will be announced. Friday will see producer prices for both inputs and outputs unveiled. Rising prices in the UK economy has been an ongoing issue for BoE policymakers as they try to moderate inflation. A report from the Engineering Employers Federation (EEF) this morning showed that manufacturers are expecting to raise their prices in the next quarter, largely due to higher raw material costs. EEF Chief Economist Lee Hopley said 'It does raise questions about whether there is the degree of spare capacity that some of the MPC members think there is, which will eventually bring inflation down,'.