And UK economic shrinkage in Q4 was worse than expected
Announcement on Australian Q4 growth this week

Sterling was the second worst performer among the major currencies, only avoiding the bottom slot as a result of the tragic earthquake that consigned the New Zealand dollar to last place. The Aussie dollar struggled at the middle of the field, first weakening by two cents against the pound then strengthening by four and a half. Sterling opened in London this morning off its lows but still down by a net two cents on the week.

Wednesday morning was a last hurrah for the sterling interest rate story. After weeks of anticipation that had included a 4% inflation rate and multiple calls for the Bank of England to be seen to be doing something about the situation the Bank of England published the minutes of the February Monetary Policy Committee (MPC) meeting. Investors were not disappointed by the minutes. The number of votes for a rate increase had risen from two to three. One of the members, Andrew Sentance, had gone for a showboating half percentage point rise. He and Martin Weale had been joined on the hawks' bench by Bank chief economist Spencer Dale. But that was it. No bullets left. Sterling had maxed out its interest rate card for the time being.

And there was worse to come. The CBI's distributive trades survey was a disappointment, at least in terms of sales achieved. Thirty six per cent of retailers reported a rise in sales between 28 January and 16 February compared with the same period last year, an eight-year low, while 30% said sales were down. It was a far weaker outcome than expected. Balancing that disappointment, at least from sterling's standpoint, was the news that 77% of shops put prices up in February. Retailers might not be selling much but at least they are stoking inflation.

On Friday the first revision to fourth quarter gross domestic product (GDP) showed that instead of shrinking by -0.5% the UK economy shrank by -0.6%. The news cost sterling half a cent there and then against the US dollar and the euro.

The Australian dollar's poor early showing was principally collateral damage suffered by all the commodity-oriented currencies as a result of the slow-motion revolution going on in Libya. Investors worried that it would mean an interruption in oil supplies, especially when industry analysts estimated that production in Libya itself had already been cut by a half or more. After a promise by Saudi Arabia to make up any global shortfall and an admission that the estimates of Libyan output had been unduly pessimistic allowed a relief rally in the later part of the week.

The Australian economic data did not bring much to the party. Construction work done in the fourth quarter of 2010 was up by 0.8% and went some way to offsetting the third quarter's -1.5% fall. The wage price index was on target, rising by 0.9% in Q4 and the Conference Board's leading index improved from a downwardly-revised 0.2% to 0.7%.

The coming week will deliver another two dismal and unhelpful UK house price indices together with three purchasing managers' indices - for the manufacturing, construction and services sectors - which might be less damaging. Australia offers its own purchasing managers' indices, building permit numbers and balance of trade. Most important will be the Reserve Bank of Australia's monetary policy decision on Tuesday morning and the fourth quarter GDP figure on Wednesday. No change is expected for interest rates and GDP is expected to have grown by 0.6%% on the quarter.

Last week has changed nothing for sterling's relationship with the Aussie. It is still in the five-cent-wide channel that has held it for six weeks and ends the month unchanged from its position at the beginning.