UK economic shrinkage in Q4 was worse than expected. Euro takes up the running on interest rates. 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 pound peaked on Tuesday before heading lower, bottoming out on Friday three cents off its highs. After consolidation over the weekend sterling opened in London today with a net loss of 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 week's euro zone data added little to the equation. Provisional purchasing managers' indices (PMIs) for the manufacturing and services sectors were both more than a point better than expected. Business and consumer confidence in Germany improved, as did industrial new orders.  The first revision to German GDP left growth unchanged at 0.4% in Q4 and German inflation was on target at 2.0%.

What swung the market in the euro's favour was the growing sensation that the European Central Bank might have something up its sleeve for this Thursday's policy meeting.   Following Lorenzo Bini Smaghi's comment about the need to "maintain inflation expectations in check" and "to take pre-emptive actions if needed" more than a week ago two of his colleagues stood up to say almost the self-same thing on Monday and Tuesday. Investors inferred that the ECB was sending a signal.  Why else would senior bods make such obvious statements? It allowed the euro to take up the running from sterling and boosted expectation that there would be something significant from the ECB this Thursday. It might be a change in the way the ECB lends to commercial banks, it might just be an upgrading of the rhetoric, but the euro will be disappointed if there is not a tightening of the policy tone.

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.  There will be Euroland PMIs too, together with the first revision to Q4 GDP growth in Euroland which is expected to leave the figure unchanged at 0.3%. Most important for the euro will be the press conference following Thursday's monetary policy decision.

Last week has changed nothing for sterling's relationship with the euro.  February's roughly three-cent range leaves sterling unchanged at the end of the month from its position at the beginning.  Buyers of the euro should continue to hedge their risk, fixing a price for half the money they need with a forward purchase.