Weekly € rates and comments – week commencing 18th May 2009

Even though the Bank of England pulled no punches on Wednesday of last week in describing how difficult the next 18 months were going to be and that the UK economy was far from being out of the wood, sterling gained against most currencies during the course of the last week. Sterling gained support from better than expected retails sales for April, better than expected manufacturing output for March and a UK housing market survey that came in stronger than expected. However, it is still difficult to know how the government is going to fund their massive debts over the coming year(s) especially given the increase in taxes announced in the last budget which seemed to be counter productive in encouraging inward investment and as such I would suggest looking at any strength in sterling as a buying opportunity rather than the start of a prolonged move up. On Tuesday of this week we get inflation figures which I am sure will make interesting reading. Otherwise a quiet week for economic data.

 

The € sits at €1.126/£1 as I write. The € held its own even on the back of the most appalling GDP figures released last Friday. The figures showed that euro land had contracted by 2.5% in the first quarter of this year on the back of a 1.6% contraction in the last quarter of last year. Germany leads the way with a fall in GDP in the first quarter of 4% which represents a fall of almost 7% in the last twelve months. I suspect more bad news is on the way but with so little good news elsewhere I can't see sterling making great strides against the € short term. Limited economic data to be released this coming week.