Weekly € rates and comments - week commencing 26th May 2008

 

 

Sterling has been holding steady. The Bank of England's minutes showed that the vote was 8 to 1 in favour of holding UK interest rates. Inflation is the BOE's major concern. UK retail figures for April were better than expected which given declining house prices and slowing economic growth was a surprise. This probably means that any cuts in UK interest rates will happen towards the end of the summer. So the period of stability may hold for a while longer.

 

The € which sits at €1.975/£1 inter bank is still flavour of the month [or even year]. Not surprising given the on going strength of the German economy which, although weakening, continues to be performing better than most other countries even on the back of the very strong €. The European Central Bank is unlikely to be cutting Euro land interest rates any time soon and I would be surprised to see any significant weakness in the € in the short to medium term.

Weekly € rates and comments - week commencing 19th May 2008

 

 

Steady week for sterling last week. This was even after the doom and gloom of the Bank of England's economic forecast which showed increasing inflation and slower economic growth. The worst result possible. The effect of high inflation is that interest rate cuts become less likely. The market feels that we will see only two further 0.25% cuts this year which is hardly going to get the economy moving into overdrive. But at least it makes it clear to everyone the depths of the problems that exist and sterling can only move forward once this is clear to all.

 

Mixed economic news for the € which sits at €1.255/£1 inter bank. The German economy continues to move forward strongly whereas the Spanish economy has hit the buffers. Also inflation continued to be at the high end of the European Central Banks target. As such any cuts in Euro land interest rates in this current year are thought to be very unlikely. However, economic problems will increase as the year continues, which may well reduce inflation and then Euro land interest rates would be reduced. However, this is not going to be the short term scenario. So no significant weakness for the € short term.

Weekly € rates and comments - week commencing 12th May 2008

 

 

Not a good week for sterling last week. Sterling is having a tough time as UK consumer confidence appears to be at record lows and UK industrial output fell 0.5%. The Bank of England kept UK interest rates on hold which was as expected. The market feels that the BOE could well cut UK interest rates every other month for the rest of this year. This is in sharp contrast to the US Fed who cut US interest rates aggressively in the first part of this year and who are not expected to cut again this year.

 

The Euro sits at €1.266/£1 inter bank. The European Central Bank continues to focus on inflation and as such there is little chance of cuts in Euro land interest rates, which were kept on hold this week, in the short to medium term. However, economic problems are still very much the order of the day in Euro land [retail sales fell in Germany in March by 0.4%] and I am sure these problems will "help" to reduce inflation and then we could well see Euro land interest rates fall.

Weekly € rates and comments - week commencing 5th May 2008

Sterling seems to be getting into a trend where it does well at the end of the week. I suppose its all relative as we are still a long way from where we were in the autumn of last year. UK manufacturing input and output prices rose to record levels in April. The feeling in the market is that this means the Bank of England will keep UK interest rates on hold at this weeks meeting as inflation will be their major concern. We wait and see.

 

Economic data for Euro land continues to deteriorate and the € sits at €1.273/£1 inter bank. The market believes that the European Central Bank will have to cut Euro land interest rates in the near future or risk a sharper downturn in economic growth. I would be surprised though if we did see the ECB reduce interest rates any time soon because inflation seems to be the ECB's greatest concern and keeping interest rates at current levels helps control inflation. Given the strength of the German economy the € has the best economic fundamentals when compared to the US$ and sterling.