Weekly € rates and comments – week commencing 26th January 2009

In another poor week for economic data sterling fell across the board as concerns for the health of the UK financial sector and the depth of the current down-turn persisted. On Monday the biggest names in British high-street banking all announced record losses. RBS share price fell approximately 60%. The newly proposed bail-out plan put forward by the UK government at the start of the week was intended to encourage the major banks to start lending again having seen little improvement in credit availability since interest rates had been slashed to historic lows. However, the initial reception of the package was clearly negative and confidence in UK business fell further. Remaining under pressure later in the week due to an increase in UK unemployment as well as evidence of the economy contracting 1.5% in the last quarter of 2008, sterling dropped to near record low levels against the euro and its lowest price against the US$ in almost 30 years. No respite for sterling.

 

Marginally better-than-expected business confidence data was one of the only highlights in a quiet week for significant Eurozone economic data. Despite positive gains against sterling the euro, currently at 1.058/£1, fell approximately 4% against the US$ over the course of  last week. Competing European exporters are concerned with the unfair advantage that UK exporters have thanks to sterling's current weakness and this will apparently be a topic for debate in the next G7 meeting.