Weekly € rates and comments - week commencing 25th February 2008

 

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.

Weekly € rates and comments - week commencing 18th February 2008

 

Sterling again held the middle ground. The Governor of the Bank of England highlighted the problem of rising costs and a faltering UK economy. UK Inflation could be as high as 3% by year end whereas the target is 2%. 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] but beware if there is another major shock like Northern Rock as we would see sterling slide rapidly.

 

The € sits at €1.330/£1 inter bank. Euro land cannot defy gravity and be an economic wonderland as all around is failing. It is very dependent on the US and UK as trading partners and as they suffer Euro land will begin to suffer. Interest rates were held by the European Central Bank. Germany saw a rebound business confidence albeit from historic lows. The € has a feeling of a safe haven currency at the moment and offering a reasonable yield but I continue to wonder how long this will last.

Weekly € rates and comments - week commencing 11th February 2008

 

Sterling held the middle ground this week. The Bank of England reduced UK interest rates by 0.25% which was as expected. The UK economy continues to suffer with weakening demand and continued disruption to the financial markets. UK manufacturing output fell in December which was contrary to expectations. However, inflation continues to exceed the target of 2.0% which makes rapid cuts in UK interest rates unlikely. The next UK interest rate reduction of 0.25% is being forecast for April.

 

The € sits at €1.330/£1 inter bank. The European Central Bank kept Euro land interest rates on hold. This again was as expected. However the hawkish tone of the previous announcement with inflation being a major worry was replaced by notes of caution on the Euro land economy arising from financial turbulence and a slow down in the economies of major trading partners. Another chink in the €'s armour and we may see talk of cuts in Euro land interest rates sooner than expected. However it still will not happen quickly.

Weekly € rates and comments - week commencing 4th February 2008

 

 

Sterling had been doing okay until Friday of last week when it lost ground against most currencies. It seems to have been a culmination of the weeks woes; bad housing figures, inflation forecast to be over 3% [target is 2%] plus the fact that the market expects the Bank of England to cut UK interest rates this week. The BOE have a very difficult job with greater than targeted inflation forecast countered by the fear of recession with, seemingly, the only tool at the BOE's disposal interest rates. We wait to see if this weakness continues this week as we approach the BOE meeting on Thursday and the announcement on interest rates.

 

The view on the € is still positive and it sits at €1.331/£1. The European Central Bank is expected to keep Euro land interest rates on hold as it fights inflation. Euro lands economic position is viewed as being strong especially when compared to the UK and the US. I still have difficulty being convinced that this is the case for all of Euro land but for the short term I see very little to shake this widely held belief.