Weekly € rates and comments – week commencing 27th October 2008

Conditions went from bad to worse for sterling last week. On the release of poor GDP figures on Friday, which were widely expected to show the UK economy contracting over the last quarter, the pound went to a new record low against the euros and slipped further down against the US$. Considering that the poor GDP figures and the comments earlier in the week from Mervin King and Gordon Brown which did the damage to sterling did not tell us anything we didn't already know it was perhaps further testament to how volatile market conditions continue to be. The Bank of England's minutes from their meeting this month were released and showed the members to be unanimous in their decision to cut rates a fortnight ago. The growing likelihood and speculation is that UK interest rates will be down to as little as 3% by the middle of 2009.

 

In spite of the positive movement against sterling, the euro, currently at 1.24/£1, had a relatively poor run last week and has, like sterling, fallen lately on the increasing speculation that interest rates will be cut in the coming months, some speculating that they will be as low as 2% by the middle of 2009. Euro Purchasing Managers index figures which showed the recent and somewhat rapid decline of the European economy was also a main contributor to the sharp fall of the euro in the markets.