Weekly € rates and comments - week commencing 1st January 2008

Sterling seems to have no friends.  Has Gordon Brown finally been found out? The UK has both a balance of payment and a budget deficit both of which need to be funded. With UK interest rates falling this is proving to be somewhat difficult and it is very difficult to gauge where the bottom is for sterling against certain currencies, especially the € where we are in unchartered territory. The markets have started to think that UK interest rates may fall by as much as 1% next year. Only a short while ago the market was predicting a reduction of 0.5%.

 

The € is still the preferred currency and sits at €1.354/£1 inter bank. Over the Christmas period the € gained three cent against sterling. Inflation continues to be of concern to the European Central Bank and so any cuts in € interest rates are very unlikely short to medium term. In fact one wonders if € interest rates will be increased given the ECB's concerns over inflation. But the Euro land economies are not a bed of roses and are not immune to problems elsewhere. Euro land exports are becoming expensive and uncompetitive. I don't know where the bottom is for sterling against the € but even with sterling's problems the fall in sterling against the € is not to go on for ever.

 

ALL THE VERY BEST FOR 2008.