Weekly € rates and comments – week commencing 26th May 2009

Last week was positive week for sterling. Encouraging news regarding UK inflation and words from the Bank of England (BoE) suggesting that the economy is progressing towards the target rate of 2% helped brighten the outlook. There were also suggestions that the $50bn asset purchase plan to stimulate the UK economy may be increased to $75bn which was in some areas seen as a vote of confidence for the actions already taken by the UK government and the BoE. Gordon Brown even drew praise for leading by example in recession-proofing the stalling UK economy. Last Thursday, the US credit agency S&P downgraded the outlook on the UK economy from stable to negative which in turn caused an instant fall in value for sterling, falling approximately 1.4% against the euro and the US$ within minutes. However, sterling rallied back throughout the day and closed the week roughly 1% up on the euro and 4.5% up and the recently impervious US$. Limited economic data this week so we wait to see if sterling can continue to hold its own.

 

Euro-zone economic data was very sparse last week and so the euro had a rather uneventful time on the markets thanks to this. Losing ground against sterling, it now sits at €1.136/£1 inter bank, but making large gains against the US$, on the whole the euro closed the week marginally down against most currencies. The euro is also under pressure thanks speculation that the US credit agency S&P may well look to downgrade the outlook on the Euro-zone as they have for the UK.