No change expected from the Bank of England this week but no promises either. ECB throws down the interest rate gauntlet.  Sterling struggled to add a cent and a half, struggled to hold onto its gain and tumbled on Thursday to a point half a cent below its starting point. It opened down there this morning in London, not looking too pleased with itself.

A good news, bad news set of UK housing saw Nationwide with a 0.3% increase in February and the Land Registry a touch behind at 0.2%. No problems there then but Halifax came out with a -0.9% fall, which put a dampener on Friday's proceedings for sterling. Looking beyond the percentage changes it is instructive to compare the average transaction prices in the indices. The Land Registry's average of £163,177 for January was remarkably similar to Nationwide's £161,211 and Halifax's £164,173. Rightmove, the estate agents' website, also compiles an index; it looks not at transaction prices but at asking prices. For the same month its average was £223,121. With a gap like that it is not particularly surprising that the residential property market is moving so slowly. Sellers don't want to offer 27% discounts and buyers don't want to pay 37% over the odds. The mortgage approval figures are not low only because banks do not want to lend, it is also be because the gulf between bid and offer is so wide.

The governor of the Bank of England was on the interest rate peacepath again. He told parliament's Treasury Select Committee that, whilst inflation would remain abnormally high through the coming year, "I don't believe we've yet seen significant evidence of a pickup in medium-term inflation expectation." Nor did the governor offer any hope that the economy would return to normality any time soon. In response to a question about living standards he told the committee "You may not get [a normal standard of living] back for many years, if ever." But Mr King did have some words of consolation for the pound.  Although he did not agree with MPC colleague Andrew Sentance that an interest rate increase would take sterling higher he did imply that the worst of the damage is over.  He saw the sell-off in 2007-08 as "a one-off re-evaluation of the likely level of sterling necessary to ensure we can achieve rebalancing of our economy" and that "we are not seeing a continuously declining exchange rate."

Inflation in the euro zone was revised down to 2.3% in January but the provisional February figure was back up at 2.4%. By the standards of Britain's 4.0% that is nothing but the European Central Bank sees it differently. With the possibility of restricted supplies pushing the price of oil still higher and with food prices still rising the ECB is concerned that the perception of a higher inflation rate could burn itself into consumers' minds. A fortnight ago the comments of three senior ECB officials seemed calculated to prepare the market for a tougher monetary policy line and that is what it got on Thursday after the Bank announced it would keep its refinancing rate steady at 1.0% for another month.

There was no messing about from the ECB president. In response to the very first questioner at his press conference M Trichet blurted out that it is "possible" the ECB might increase interest rates early next month. It was not a commitment that it would do so but was a clear acknowledgment that the governing council is considering such a move. And that was enough for investors. He did also add that any such move would not be the first of a series but by the time he got to that bit investors were already filling their boots with euros.

In what will be a slow week for ecostats the only offerings from Euroland will be German ones for factory orders and industrial production. In Britain the balance of trade and industrial production will tee things up for the Bank of England's monetary policy announcement on Thursday.  No change is expected to the 0.5% Bank Rate so the event will probably be as much of an anticlimax as usual. There is an outside chance that the committee will make a move but most analysts think nothing will happen before May.

Last week was another that changed nothing for sterling's relationship with the euro. Buyers of the euro should continue to hedge their risk, fixing a price for half the money they need with a forward purchase.