Weekly € rates and comments – week commencing 16th February 2009

Sterling started last week positively largely thanks to news that Barclays Bank had posted much better than expected annual profits. However, news regarding the re-structuring of Russian corporate debt last Tuesday drove market sentiment against sterling and back into favour the safe-haven assets such as the US$ and the Japanese Yen. This in turn lead to a trading day loss for sterling of approximately 2.5% against the euro and the US$. In spite of this, figures which showed UK unemployment to have increased for the twelfth consecutive month and the Bank of England's quarterly inflation report which contained suggestions of a deep recession ahead and the potential need for quantitive easing did little to harm sterling midweek. By Friday sterling did show signs of a small rally but these were limited by news of more problems from the UK banking sector and a 40% drop in Lloyds TSB shares.

 

The €, currently at €1.114/£1, gained against sterling during the course of last week. There was little in terms of significant market data from the Eurozone until the end of the week. Figures showing a large fall in European industrial production on Thursday were compounded by Euro GDP data which showed European economies to have contracted further in the fourth quarter of 2008. Specifically, the German economy contracted by 2.1% over the same period – its largest ever quarterly fall in the modern era. This will likely encourage speculation towards a cut in interest rates of at least 0.5% when the European Central Bank next meet in March.