Weekly € rates and comments – week commencing 8th June 2009

Sterling's positive run on most major currencies was curtailed in the middle of last week as risk-aversion returned and the safe-haven USD regained lost ground from last month. The continued pressure on Gordon Brown to resign as PM, having navigated the UK economy this far through the credit crisis, has reflected poorly on sterling as any major upheaval in domestic politics could spell a reworking of current plans and delay action on matters yet to be resolved. UK economic data last week, ranging from consumer credit reports, mortgage approvals and inflation data, was no worse than expected. The Bank of England also kept interest rates on hold at 0.5% and stated that there would be no immediate expansion of the quantitive easing measures – at least for the time being. By close on Friday, sterling was roughly 2 cents down from its opening price on Monday against the US$ but 7 cents down from its peak price mid-week. Against the euro sterling managed to rally back from its midweek losses and close trading on Friday practically unchanged from Monday's levels. Sterling's weakness has continued into the start of this week as the calls for Gordon Brown to resign grow ever louder and until this uncertainty is resolved one way or the other sterling will continue to be under pressure.

 

 

The € currently sits at €1.138/£1. There were no major surprises in European market data last week nor from the European Central Bank's decision to keep their interest rates on hold. Though there was a further revision down of GDP estimates for late 2009, the euro has been broadly resilient to the suggestions and speculation that conditions will continue to deteriorate in Europe as Britain and the US begin to see the vague signs of recovery. Eurozone inflation figures and estimates continue to weigh on the euro but with little suggestion that monetary policy will change it may be some time before we see much long-term upside for the single currency.