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.

Weekly € rates and comments – week commencing 20th October 2008

After a positive start to the week which saw sterling make gains against the euro and US$, sterling only managed to maintain similar trading levels to previous weeks. The start of the week benefited from renewed confidence born from the UK treasury's cash injection to the high-street banks and lending markets. There was unprecedented volatility in the stock markets throughout the week, the FTSE recoded its worst daily losses in several years, but this did not translate to the value of the pound on the markets and prices remained relatively steady. The Bank of England suggested this week that inflation was now expected to return to target levels sooner than had been previously anticipated, earlier in the year, and suggestions from one member of the MPC supported speculation on the likelihood of interest rate cuts in the coming months.

 

The euro currently at 1.297/£1 is losing ground. Having convened over the weekend to discuss the strategy to deal with the global financial meltdown the European member states opted also for large cash injections into their financial institutions with assurances and guarantees on deposits held. European market data showing that inflation has officially fallen from its peak in the summer which has now opened the door for the ECB to lower their interest rates sooner than expected.

Weekly € rates and comments – week commencing 13th October 2008

In yet another historic five days on the UK markets, where the FTSE posted its biggest ever weekly loss, sterling fell against the euro and the US$ throughout last week. The co-ordinated cut in interest rates by the Bank of England, the European Central Bank (ECB) and The US Federal Reserve (the Fed) of half of a percent seemed to favour sterling least as sharp losses were seen across the board. The assurances provided by the British government's £40bn 'Special Liquidity Scheme' also seemed to do little to revive confidence in the economy and but for a late rally on Friday the sense that sterling still has a long way to come to be back at its levels of last year is an understatement.

 

Only three months after hiking interest rates by one quarter of a percent, the ECB cut to 3.75 % in the co-ordinated move with the UK and US. With inflation not the most worrying issue within the Eurozone anymore, the shift towards supporting business growth was their given rationale behind the decision. With this stance taken, speculation towards further cuts in rates will gather momentum and the euro, currently at 1.255/£1, may well stand to weaken on the markets going forward. However, the one certainty at present is the continuing air of unpredictability within the markets.

Weekly € rates and comments – week commencing 6th October 2008

Sterling left it late in the week but gained sharply against the euro on Friday. The pound surged to its highest levels for some months largely thanks to an injection of £40bn from the Bank of England to help with the liquidity issues which are causing so much turmoil in the UK financial sector. There will be great interest to see what the Bank of England will do with their decision on UK interest rates this week as recent speculation has suggested a cut, or even a series of cuts, may well be imminent.

 

The euro, currently at 1.289/£1, fell throughout last week against both sterling and the US$. Comments from JC Trichet of the European Central Bank suggesting that inflation was no-longer as much of a concern as the slow-down in business growth and supported the belief that interest rates will by cut during the 1^st quarter of 2009, if not sooner. This may have come as no massive surprise but will surely weaken the euro in the coming months which will hopefully help a troubled German export industry struggling with an over-priced euro.