€ rates and comments - week commencing 30th June 2008

 

Sterling sentiment hasn't changed over the last few weeks. Problems still abound with UK inflation high and the UK economy slowing. The housing market is still suffering and as the credit crunch continues to bite, mortgage approvals have fallen significantly, we are far from seeing an end to the uncertainty. The Bank of England meets this week and the expectation that given the current diverse position noted above they will sit on their hands and keep UK interest rates unchanged. Do they have any other option? Probably not and I expect steady as she goes for a while.

 

The Euro which sits at €1.263 inter bank has held steady against sterling. The European Central Bank meets this week and is expected to increase € interest rates by 0.25%. This is on the back of high Euro land inflation. However Euro land economic conditions seem to be worsening quicker than expected and this will act as a "natural" break on inflation. It would be a real surprise if rates were not increased but this increase should be the last for the foreseeable future.

Weekly € rates and comments - week commencing 23rd June 2008

 

 

Sterling maintained its "steady as she goes" stance although there have been a few waves along the way. First was the open letter from the Bank of England to the Government explaining why inflation was over 3% when the target was 2%. The problems are that the main factors affecting inflation, energy and food costs, are outside the BOE's control while at the same time the UK economy is suffering. Therefore trying to bring UK inflation under control by significantly raising UK interest rates is not really an option. Then the minutes of the last BOE meeting were released which showed that one member of the committee had voted to reduce UK interest rates. Then the UK retail figures for May were released which showed a 3.5% increase against a forecast fall which was much higher than expected. So by the end of the week we seemed to be back to where we started which is reflected in most of the exchange rates.

 

No significant news to affect the € last week and it sits at €1.266/£1 inter bank. The major plus that Euro land has enjoyed recently is that in Germany it has a highly developed and efficient industrial power house and, apart from places like Spain and Ireland, house prices are not too high. This week we will see a lot of economic information which will give us a clearer feel as to the likely direction of Euro land interest rates. Currently the market is expecting them to be increased.

Weekly € rates and comments - week commencing 16th June 2008

 

 

Sterling continues to be "steady as she goes". Over the last few weeks there has been little downward movement which suggests that sterling has found a base from which it may strengthen. The only worry is if we have another shock such as a Northern Rock. UK inflation is the major concern. Not just here in the UK but worldwide. There is even talk that the Bank of England may have to increase UK interest rates sometime soon as a counter to UK inflation. I must admit my feeling is that this is unlikely given the parlous state of the UK economy but the BOE might be "forced" to do a one off increase of 0.25%. I suspect "more steady as she goes" until we see a pick up in the UK economy.

 

The € has lost a bit of ground against sterling and sits at €1.270/£1 inter bank and against the US$. This is on the back of rhetoric from both sides of the Atlantic with the US talking up the US$ and Euro land talking down the €. This included the European Central Bank trying to make it clear that we will not see a raft of Euro land interest rate increases in the coming months, in fact, probably just one.  This rhetoric has been successful in the short term and it has to be remembered that Euro land does have some significant problems of its own with some areas suffering very badly from the strong €.

Weekly € rates and comments - week commencing 9th June 2008

 

No major movements for sterling in the last week, losing a bit of ground against some currencies and gaining a bit of ground against others. The Bank of England met and decided to keep interest rates on hold. This was very much as expected. The BOE's choices are somewhat limited as UK inflation is way above target but at the same time the UK economy is suffering. UK unemployment figures are expected to see an increase this week. Once we see inflation start to pull back it is expected that the BOE will start to cut UK interest rates. Strangely this may be good for sterling as it will show that the prime objective is get the UK economy going again rather than fighting inflation.

 

The European Central Bank sits at €1.249/£1 inter bank. The ECB met last week and kept Euro land interest rates on hold. Again, this was as expected. However, the twist from the ECB was that were considering an increase in Euro land interest rates given the level of inflation. The trouble with Euro land is that there is a wide range of economic performance. Some countries, such as Germany are doing okay whereas others, such as Spain, have real problems. One size clearly does not fit all. I suspect an increase in Euro land interest rates will be counter productive and have a negative affect on the € medium term.

€ rates and comments - week commencing 2nd June 2008

 

Sterling had another steady week last week. UK house prices still continue to fall while fuel and food costs continue to rise. Consumer confidence is fragile. Not good. However a lot of bad news has already been factored into sterling's exchange rate against most other currencies.  The key is for there to be no more major bad UK news. The Bank of England meet this week and the expectation is that UK interest rates will be kept on hold.

 

The € sits at €1.265/£1 inter bank. The economic news out of Euro land continues to worsen and highlights a weakening economy. Euro lands balance of payments deficit showed that the strong € is having a serious negative effect on its exports. The European Central Bank meets this week. Inflation is still the major concern but it is thought unlikely that we will any increases in Euro land interest rates anytime soon.