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Sterling wobbles after hitting seven-month trade-weighted high. Bundesbank's Weber sees no room for further euro rate cuts.

A three cent range kept sterling comfortably between €1.16 and €1.19. It opened in London this morning at €1.1750, a cent down on the week.

The week began with another line-up of international bodies moping about the economic outlook. The European Central Bank, the World Bank and the Organisation for Economic Co-operation and Development upped the ante on economic shrinkage with downgrades either of their forecasts or their optimism.

Where previously the World Bank saw the global economy contracting by 1.7% this year, it now envisages GDP falling by 2.9%. The OECD sees "a very difficult 2009, with negative growth in the OECD area. Unemployment problems are going to continue to linger." Jean-Claude Trichet of the ECB said that "Currently, we are still in the downturn phase..."

The gloom lasted for all of 36 hours but it coincided with sterling's trade-weighted index touching a seven month high. Even though no finger was pointed directly at the UK economy the dent to confidence reflected badly on sterling: If you can't sell the pound at a seven month high, when can you sell it?

Sterling took another knock on Wednesday when the Bank of England governor and one of his sidekicks appeared before parliament's Treasury Select Committee. Both admitted to concern about how quickly the economy will pick up after the recession. It did not help maters when Governor King described the government deficit as "truly extraordinary".

There was an almost total drought of UK economic data. It left investors with almost nothing upon which to make their decisions, hence the lack of focus on sterling's direction.

Things were not much different - at least in that regard - for the Euro zone. Provisional figures for the purchasing managers' indices offered a two-point improvement in the manufacturing sector but a slightly weaker reading for services. Industrial new orders shrank by 1% in April and were down by more than a third on the year.

From the individual nations in Euroland there was a little more guidance. Main amongst these was the IFO assessment of German business confidence. Although the current assessment slipped lightly from 82.5 to 82.4 the other two measures improved. The business climate reading went up from 84.2 to 85.9 and expectations jumped three and a half points to 89.5. Rather less spectacular was the quarter point improvement in Gfk's German consumer confidence index from 2.6 to 2.9.

Bundesbank head Axel Weber is renowned for his hawkish views and he was at it again last week: "The ECB Governing Council has used the room for rate reductions that was created by waning inflation risks and a dramatic worsening of the economic situation." As for the ECB's plan to provide additional cash through the purchase of covered bonds; "additional steps are not necessary at the moment." His comments were not a surprise but the market decided they were positive for the euro.

In sterling's current mood it seems able - though maybe not without some effort - to push through every obstacle in its way. The dip a fortnight ago almost to €1.16 suggests that level is the new support line. The next obvious obstacle is the psychological one at €1.20 (although €1.19 poses a barrier of its own). Beyond that, the more important technical resistance is the early December high in the region of €1.2150. Buyers of the euro should bide their time, using a stop order to protect against a reversal.

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