Weekly € rates and comments – week commencing 23rd March 2009

Having made broad losses against most major currencies in prior weeks, last week sterling continued to slide against the euro but made substantial gains against the US$. The UK unemployment figures and the minutes from the Bank of England's (BoE) last meeting on interest rates were both released on Wednesday. The minutes suggested that the BoE members would continue their 'dovish' stance on monetary policy and would look to further unconventional means of supporting the economy and liquidity, if necessary, in the months ahead. The UK unemployment figures also broke the psychological two million figure and together with the news from the BoE, sterling fell to some of its lowest levels against the euro since almost hitting parity in early January. Any upside for sterling will be limited for as long as such drastic measures from the BoE are endorsed and the IMF has also suggested that we will be the last out of the global recession.

 

The euro sits at €1.0674/£1 having benefited last week from inflation data and a business sentiment survey which both turned out more favourable than had been previously expected. With little other economic data during the week, the euro maintained a steady level against most currencies and made gains against sterling and the US$ due to the poorly received news from their respective central banks. At the end of last week the euro fell from a two-month-high against the US$ thanks to a slowdown in industrial production during January. Late on Friday, comments from the European Central Bank's (ECB) Axel Weber suggested that the ECB would strongly consider cutting euro interest rates in the coming months but also questioned the value of intentional devaluation if all other major central banks are intent on doing the same.