Weekly € rates and comments – week commencing 19th January 2009

Following record week-on-week gains against the euro in the previous week, sterling had a steady week ending only marginally down against the euro on Friday. Persistently poor domestic data reduced sterling's gains during last week. The growing UK trade deficit, weaker-than-expected retail sales and more high-street names going into administration will have limited sterling's chances of strengthening against other major currencies.

 

The big news in the European markets last week was the cut of 0.5% in euro interest rates by the European Central Bank (ECB) down to 2% on Thursday. As the likelihood of this cut increased during the week, the euro, currently at 1.102/£1, lost substantial ground against most major currencies and ended the week significantly lower against the US$. It was perhaps for this reason that JC Trichet, the president of the ECB, stated that future cuts to interest rates will not be considered for next month's ECB meeting. The outlook for Europe has become substantially bleaker as there is a stronger realisation of how poor economic conditions are in several of the key member. This could be a bad year for the euro.