Inflation pressures moderate. Low profile dollar wins by default.

Having clung to a cent-and-a-half range for the first four days of the week sterling moved lower on Friday. It bottomed out on Friday afternoon two and a half cents below its high and slunk into the weekend to emerge this Monday morning unchanged from this position. The pound's net loss on the week was two cents.

Another drought-ridden crop of UK economic statistics began with the British Retail Consortium reporting lower sales in May, after April's bank holiday boost. It ended with the revelation that UK industrial production had fallen by -1.2% in the year to April and by -1.2% in the month itself. It was not all bad news though. Halifax reported a tiny 0.1% monthly increase for its house price index in June and offered a vaguely optimistic outlook: "Overall, we expect a moderate improvement in the economy during the remainder of 2011, which, combined with continuing low interest rates, is likely to support housing demand. This should prevent a further marked fall in prices and help to stabilise property values later in the year."

The scale of the moderation in that economic improvement was made clear by the National Institute for Economic and Social Research, with its estimate on Friday that the UK economy expanded by 0.4% in the three months to May. The trade figures were alright though, in a British sort of way. April's deficit was down to -4.4 billion from March's -4.5 billion. The producer price index showed a relaxation of the squeeze on manufacturers; the speed of their cost increases slowed from an annual 17.9% to 15.7%, while factory gate prices eased only slightly from 5.5% to 5.3%. For the month of May, factory gate output prices were up by 0.2%; input prices (costs) fell by -1.2%.

Thursday's Monetary Policy Committee (MPC) meeting was every bit the non-event it had been hyped up to be. Nothing changed and nobody said anything. Not until 22 June will investors discover from the minutes of the meeting who voted for what. The best guess is that the departure of Andrew Sentance from the Committee will have changed the voting pattern from 9-3 in favour of no change to 7-2.

The US economy maintained a particularly low profile all week - a strategy that did the dollar no harm whatsoever. Ecostats numbered less than a handful, all of them of second- or third-division status. The Federal Reserve's Beige Book survey of regional activity offered no new insights. One way or another, all 12 districts saw some sign of expansion; four of them reported specific problems relating to weather or to breaks in the auto-manufacturers' supply chain. Weekly jobless numbers showed a continuing fall in the number of ongoing claims. Import and export prices both rose by 0.2% in May.

That lack of bad news from the US will have had a lot to do with the dollar's end-of-week surge. It was the only one left standing when investors did a stock-take of the shortcomings of their alternatives: Japan's shrinking economy; potentially lower demand for the commodity exports of Canada, Australia and New Zealand; persistent low interest rates in Switzerland; reduced inflation pressures in Britain; continuing doubts surrounding the Greek bailout... the list goes on. So they bought the dollar. It was not much of an argument but it seemed a good idea at the time.

In the week ahead, the two important UK statistics will be for consumer price index inflation and employment. The former loses most of its theoretical clout because everyone is aware that the MPC will keep interest rates as low as it can for as long as it can. The latter is critical to the economy and the currency; without jobs growth there can be no spending growth and no economic growth. Making up the numbers will be the RICS house price balance, consumer confidence (Nationwide's version) and retail sales.

The US inflation numbers will be just as irrelevant as the UK ones, for exactly the same reason, and producer prices fall at the same hurdle. US retail sales will be far more important as an indicator of recent economic activity, as will the data for industrial production, housing starts and consumer confidence.

Technically, sterling has the potential for another cent or two of downside in the near future. Beyond that, however, it is hard to see the dollar keeping its nose clean enough to make further progress. Buyers of the dollar would be use to a forward purchase to fix a price for half the money they will need.