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First signs of Bank of England optimism dented by public borrowing. ECB hints at an end to 'extraordinary' liquidity measures.

For the first couple of days the market was comparatively enthusiastic about sterling. It climbed from €1.1150 €1.1300. It failed to get any further and on Wednesday set off downwards.

It was flirting with €1.11 on Friday and was trading slightly below that level when London opened this morning.

One reason for the pound's initial success was a speech by Andrew Sentance on Monday. Addressing an audience at the University of London he was the first Monetary Policy Committee member to raise the possibility of an end to quantitative easing.

In contrast to the governor's studied melancholy, Dr Sentance conceded that 'the UK economy is now moving out of recession and into the recovery phase of the cycle.'

He also alluded to a future need for interest rates to move upwards again because 'as the recovery develops there will also come a point where we need to tighten monetary policy.'

Having become accustomed to a diet of doom and gloom from the Bank in recent months, investors saw Dr Sentance's position as a ray of hope for the UK economy.

There was also support for sterling after Tuesday's consumer price index data showed that inflation can go up as well as down.

Price rises in October lifted CPI inflation to an annual +1.5%, well within the Bank of England's target zone. A day later the pound crashed onto the rocks of the Monetary Policy Committee minutes.

The bit that hurt was the revelation that one member, Morgan Stanley's David Miles, wanted to go for £40 billion. Bank of England chief economist Spencer Dale's vote for no increase might have been a balancing factor but investors were more bothered by the £40 billion rogue vote.

On Thursday it was public finances that did the damage. Analysts had expected public sector borrowing in October to be less than a third of September's £15 billion.

Investors were therefore distressed to see a figure of more than £11 billion, an October record. Borrowing in October last year had been close to zero. The pound drifted lower as investors spent the rest of the week stewing over the data.

In contrast to the difficulties set by UK economic data and events the euro zone managed to complete the week with a clean sheet. Inflation ticked higher and there was no reaction to a wider than expected trade balance in September. National figures included nothing to worry investors.

The word from Frankfurt was that the European Central Bank is preparing the ground to rein in some of the special liquidity measures introduced at the height of the financial crisis.

The first move is expected next month when the ECB will probably pull the plug on one-year loans to commercial banks. Although ECB president Trichet admitted on Friday it was 'too early to say the crisis is over', he said that 'eventually the administration of painkillers must be stopped if patients are to get back on their own two feet'.

The ECB will soon withdraw some of its 'extraordinary measures' to ensure they do not cause higher inflation. Investors like that sort of talk.

In the last couple of months the pound has had an unpredictable ride between €1.15 and €1.05 but has become mired between €1.10 and €1.13 with no sense of direction.

For several weeks now the conservative strategy has been to maintain a neutral stance on currency exposures. There is as yet no reason to modify this stance. Buyers of the euro should hedge half their requirement with a forward purchase.

Those with a short time horizon who do not want to cover their whole exposure should protect themselves with a stop order.

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Is any property below €50,000 a cheap Spanish property? Are cheap Spanish properties only to be found at auction or as bank repossessions? How much below market value does a Spanish property need to be to be considered cheap?

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