Weekly € rates and comments – week commencing 9th February 2009

Sterling suffered a shaky start to last Monday, falling from the gains made at the end of the previous week. On Tuesday sterling was steady and on Wednesday began to climb across the board in anticipation of the Bank of England's (BOE) meeting for interest rates the next day. The much-expected cut of 0.5% to a base interest rate of 1% prompted sterling to surge positively against the euro and reach its highest value in approximately 2 months. There was little in terms of genuinely positive economic news for sterling and so the adjustment to these improved levels could be interpreted as a general sense that sterling has for too long now been under-priced against other major currencies.

 

After last month's meeting on interest rates JC Trichet, president of the European Central Bank (ECB), stated that he would not consider further cuts to European interest rates until the month of March, so adopting a less aggressive stance to monetary policy. As a result of this and other large issues plaguing the European economy, the euro fell against the pound and the US$ reaching its lowest value in two months last week and is currently at 1.147/£1. Although the European economy is thought to be behind in the cycle of the credit crunch, this apparent evidence of inaction by those in charge of steering the continent through the crisis is beginning to result in a loss of confidence in the euro's future.