Weekly € rates and comments – week commencing 2nd March 2009

Another false dawn for sterling started last week as news regarding the re-structuring of RBS, one of the many ailing UK banks, improved confidence in the financial sector and lead to broad gains against most major currencies. However, by close on Tuesday sentiment had turned against sterling and the UK banks thanks to reports of business investment having fallen steeply in the last quarter of 2008. Sterling fell further later in the week thanks to weak UK GDP figures that gave further evidence of a worsening recession in the UK. All of this combined with a poor reception to the government's 'Asset Protection Scheme', which will aim to protect the major banks' against £500bn of toxic debts with tax-payers' money meant that overall it was a bad week for sterling although sterling did steady on Friday and made marginal gains against the euro and the US$.

  

The euro, currently at 1.126/£1, experienced a mixed week gaining marginally on sterling but losing ground against the US$. With troubles from last week regarding the debt of eastern European states subsiding and the prospect of a cut in interest rates from the European Central Bank already felt as a certainty the lack of other news to drive the euro down allowed the single currency to stabilise. However, there is still a sense in the markets that the lack of drastic action to stimulate the stalling economy by the powers that be has left Europe further behind in the cycle of the global recession and this may lead to a prolonged euro weakness through 2009 and 2010.