€ rates and comments - week commencing 31st March 2008

Sterling lost a bit of ground against the safe haven currencies as expectations of a UK interest rate reduction grew. This was on the back of the Bank of England confirming that funding problems were critical and that they were willing to both make additional liquidity available [i.e. make cash available to the banks] and interest rates more accommodative [i.e. reduce them]. Funding problems are hurting the mortgage market with less cash available and lending rates being increased. Annual house price increases are non existent [at best]. So sterling potters along with no real upside potential, short to medium term, especially against the safe haven currencies.

 

The € is very much the safe haven asset of the moment and sits at €1.258/£1. Business confidence continues to be strong in Germany and also, surprisingly, in France. The European Central Bank continues to highlight the importance of its fight against inflation so no chance of cuts in Euro land interest rates any time soon. So don't expect any gains for sterling against the € any time soon.

 

 

€ rates and comments - week commencing 24th March 2008

 

A strange week for sterling last week. You would have thought that sterling would gain against the US$ as the investment bank that had to be saved ten days ago was American. No, the markets seemed to take the view that as the UK was so dependent on the financial sector and the pre-eminent position of the City that any financial hardship anywhere was negative for sterling. We then had the City rumour mill in full flow as to financial stability of HBOS which was proved to be nonsense but again had a negative drag on sterling. Against this UK retail sales for February which were announced on Thursday were better than expected which has acted as a short term fillip. I am sure markets will be volatile for the next few  weeks.

 

 

The € which sits at €1.284/£1 inter bank is viewed as a safe haven currency and continued last week to set new highs against sterling and the US$. However a key feature of the € has been the view of the market that holding it acted as an anti inflationary counter. The reason for this is that energy and commodity costs are priced in US$'s and as there cost went up the € would strengthen and counter any additional cost of buying the commodity hence reducing inflation. However this week commodity prices have suffered a reversal and as such this "feature of support" for the € may become less significant.

€ rates and comments - week commencing 17th March 2008

 

Times continue to be interesting given the problems in the US and gold and gas reaching record prices. The UK budget was held last week. Nothing much happened as the Chancellor has some fairly simple and fundamental problems. The UK economy is not growing as quickly as hoped/wished for and tax revenues are less than out goings. So the Chancellor was unable to give much away or take much more from our pockets. In the current climate sterling itself is a side show and continues to gain against the US$ and stay close to all time lows against the Euro.

 

The € sits at €1.280/£1 inter bank. The € continues to be viewed as a safe haven currency close to highs against sterling and hitting ever increasing highs against the US$. In fact Euro land experienced industrial growth in January ahead of expectations. However, the European Central Bank has started to make a lot of noise as to how large exchange movements are bad for businesses. I think a good interpretation of this would be that the strength of the € is beginning to hurt Euro land business. But the ECB is unlikely to reduce interest rates soon and given US$ interest rates are expected to be reduced I can't see any reversal any time soon in the € strength.

Weekly € rates and comments - week commencing 10th March 2008

 

Sterling gained some ground against most currencies. The Bank of England kept UK interest rates on hold which was very much as the market expected. In February, UK consumer confidence continued to fall but the UK services sector did better than expected. This conflicting data highlights how difficult a job the BOE has. Cuts in UK interest rates are expected but timing will be the issue.

 

The Euro sits at €1.311/£1 inter bank and is benefiting from the "benign" economic conditions in Euro land. Economic conditions are probably not that benign just a lot better than elsewhere. The European Central Bank kept € interest rates on hold last week which was as expected. The ECB also raised its forecast for inflation and trimmed those for economic growth. However it was stressed by the ECB that it is mandated to ensure price stability which has in effect ruled out any short or medium term Euro interest rate cuts.

Weekly Euro rates and comments - week commencing 3rd March 2008

 

UK economic news continues to be poor including UK consumer confidence, slowing house price inflation and fourth quarter growth that looked over reliant on government expenditure. However, most of the main "stories" came from elsewhere and because of this sterling's fate was a one of contrast gaining against some currencies and losing against others. The Bank of England meets later this week and it will be interesting to see if they reduce UK interest rates. Clearly the UK economy is suffering and the credit crunch is still causing significant difficulties to the financial arena. But inflation continues to be a major problem and therefore UK interest rate cuts may not happen as quickly as expected or hoped for.

 

The €, which sits at €1.3062/£1, has benefited from the problems of the US$ and from better than expected economic news especially in Germany. German business confidence was better than expected and we also saw German unemployment fall. However it is not all good news in Euro land with French consumer confidence falling but the overall feeling from the market is that Euro land interest rates will be held for a while. The European Central Bank meets later this week.