Sterling lost ground following our beloved governments decision to nationalise Northern Rock. Not a great outcome but it will hopefully draw a line under a very damaging event to the UK's reputation. Sterling has lost significantly against most if not all currencies since the problems at Northern Rock were made public. The Bank of England still has other problems not least of which is the conflict between rising costs and a faltering UK economy. The minutes of the BOE's last meeting highlighted this conflict and as a result, the market has tempered its expectations as to the speed and extent of UK interest rate reductions. I still believe sterling is oversold [i.e. sterling should strengthen over the medium term but the reality could be a lot different]. Also beware of another major shock like Northern Rock as we would see sterling slide rapidly.
The € sits at €1.324 interbank. Euro land is an interesting mix given Germany is still performing whereas those countries such as Ireland where there has been a huge property boom are suffering. Allied Irish Bank is having to "look after" € 700 million of loans to property developers who are suffering cash flow problems. I suspect such situations will continue to rise. The European Central Bank is likely to hold interest rates steady for the time being.
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