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.

 

Weekly € rates and comments – week commencing 24th November 2008

Sterling edged up through last week away from the record lows of the previous. The shock of reaching such a low level against the euro which many had considered as inconceivable has forced a re-think of how much further down sterling could fall with further interest rate cuts becoming more of a certainty as inflation continues to fall. However, the consequence of such cut may be further devaluation of sterling on the markets and is something the Bank of England would want to avoid but may have to live with short-term.

 

The euro, currently at 1.182/£1 also maintained its value in the markets and although marginally lower against sterling it remained relatively unchanged against the US$ from the previous week. The extent of the recession within the Eurozone was demonstrated by a survey showing that business activity has slowed to its lowest level in over ten years. This has, much like the BoE, left the onus on the ECB to lower the interest rates in hope of stimulating business growth.

Weekly € rates and comments – week commencing 17th November 2008

Sterling is in the pits. The constant stream of increasingly negative data over the last year as well as the gloomy outlooks on the year ahead have left a sad picture of the UK economy. The recent flurry of well publicised job cuts and the ever growing sense of an impending recession (that may or may not have 'technically' started already) has new, unwanted benchmarks being set by sterling daily. The hope that monetary policy will be of any help against the current woes in the short term and this within a financial system already proven to be flawed is perhaps over optimistic. So don't expect any upside for sterling in the short term. Further downside seems more likely.

The €'s price against sterling, currently 1.178/£1, is flattered by the total decimation of the pound. Against the US$ however, the euro has itself lost an awful lot of ground in the past six months. The fact that last week Germany officially fell into recession was countered by news that the French economy has bucked the current trend and actually grown fractionally in the last quarter has kept the single currency treading water. Interest rates in the eurozone may well be lowered over the coming months but the sharing of the burden amongst the Europeans has arguably helped some individual nations from the perils now affecting the UK economy.

Weekly € rates and comments – week commencing 10th November 2008

The Bank of England's move to slash interest rates in the UK last week from 4.5% to 3% was surprisingly well received by the markets and it is hoped the decision will shock the flagging UK economy back into life. Despite rates being at their lowest for 53 years, there were suggestions following the announcement that further cuts may be on the cards in the early part of the new-year. Much of this speculation is owing to the fear of inflation coming in under the Bank of England's targeted 2% in the coming months. However despite the news of the aggressive cut in rates being seen as a positive move for the UK economy, sterling fell to new record lows against the euro on Friday morning and closed the week marginally lower against the US$.

 

The European Central Bank also cut their rates last week. A rather more conservative cut of half a percent to 3.25% that was largely expected did little in terms of market movement for the euro, which currently sits at 1.225/£1. Concerns parallel to those of the UK regarding the potential undershooting of inflation targets have left some to speculate that rates could well be reduced further in the next few months.

Weekly € rates and comments – week commencing 3rd November 2008

Sterling rose steadily against the euro throughout a relatively quiet week for market data. Closing last week only marginally up against the US$ despite another period of high price volatility the sterling to US$ rate moved in a huge range over the last five days of around 8%. The reductions in LIBOR (inter-bank lending rates), which were significantly reduced over previous weeks, were intended to bring more stability to the markets and ease conditions for the money lenders. However, the aftermath of the last few months in the credit crisis are leaving investors and business confidence still very much at a low. This week's decision on interest rates from the Bank of will provide a shock only if rates are not cut, with many expecting a further half a percent off to follow last month's emergency cut of the same value.

 

The European Central Bank may also be in line for cutting interest rates this week and despite no promises being given from Jean-Claude Trichet, the fact that inflation has been measured again to be returning to more manageable levels will have left the door open for a move from the ECB sure to ease conditions for business growth in a stalling economy. The euro's value against sterling, currently at 1.2635/£1, is still holding firm whilst having lost well over 20% of its value against the US$ since July.