Weekly € rates and comments – week commencing 1st December 2008

Sterling made steady gains throughout last week against the US$ and the €, owing more to issues within the American and European economies rather than from anything positive from recent UK market data. The pre-budget speech by Alistair Darling last Monday did little to move sterling on the markets. However, one mildly positive note was the release from Nationwide on Thursday of house prices falling less than was expected over the past month. The upside potential for sterling is quite possibly limited by the prospect of another aggressive cut in interest rates from the Bank of England this week. Should the base rate be slashed by 2%, down to 1% as some suspect may be the case, sterling may well find itself losing significant ground once more this year. Even if the reduction is smaller, the downside risk is still significant.

 

A stimulus package from the ECB was outlined midweek. Much like the reaction to the Federal Reserve's package, the €, currently at 1.212/£1, lost ground against most major currencies. The € also lost further ground across the board at the end of the week, largely thanks to lowering consumer and business confidence as well as poor inflation data. This has heightened expectations that the ECB will also be forced to cut interest rates aggressively.