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

Having weakened off slightly in previous week's trading, sterling continued a downward trend against most major currencies throughout last week. Persistent concerns within the UK banking industry as well as weak economic data such as a marked fall in month-on-month industrial production kept sterling under pressure and at a low ebb sliding to a 6 week low against the euro. The Bank of England (BoE) initiated its quantitive easing measures on Wednesday which brought about little reaction on the markets and with little market data published in the latter part of the weak sterling stabilised and even recovered some lost ground. According to a broader analysis of recent data, the UK recession is still gathering momentum and points to harder times to come. However, in spite of the tough decisions and some may consider risky actions taken by the government and the BoE to limit the damage of the recession, the UK could be considered to be ahead of the curve and even tougher times will surely come to those countries and governments who have lagged behind in their responses to the global downturn. This may be of benefit to sterling in the medium term.

 

The Euro made small but steady gains against sterling and the US$ this week despite a lack of significant economic data. The recent fall in value of some of the smaller European currencies heightened speculation that the euro may well be adopted sooner than scheduled by the countries concerned and would have contributed to some of the euros strength. I also wonder if the market is positioning the euro to make another attempt on sterling euro parity. Not a huge amount of logic as to why we would see this as most believe that sterling is oversold but logic doesn't always apply. We will have to wait and see.