Weekly € rates and comments – week commencing 15th June 2009

With little significant economic data last week and a quieter time for the under-fire Gordon Brown, sterling made the most of its chance to prove its recent trend was perhaps not the false dawn some had expected. Much of the focus for sterling has centred on the speculation that the decline in the UK economy is nearing or perhaps reached its end. Though several sources including the Bank of England and Chancellor Darling have warned against assuming that the recession is nearing its end, confidence surveys and economic data have reflected that conditions are still poor but not deteriorating as they had been in previous months. UK industrial production has increased marginally and the NIESR estimate of UK growth based on GDP showed a turnaround as of April with the improvements continuing through May. Further, steady improvements against the euro, which have continued at the start of this week, have lifted spirits, given the near-parity disasters at the start of the year and sterling has regained ground against the US$,  although on Monday it lost ground as risk aversion came to the fore. Today we have inflation data for the UK, the US and the Euro zone announced. All three areas are expected to show a continued decline and no increase is expected in the short to medium term given the level of spare production capacity throughout the world. UK unemployment will be released on Wednesday which is expected to show an increase.

 

Euro economic data was limited last week, with disappointing figures regarding money supply and German industrial production, and so the euro did not make any particularly large gains or losses., In spite of losses made against sterling during last week the euro managed to hold a relatively steady price against the US$. There has been some speculation as to whether the European Central Bank will look to increase interest rates but given that many expect Europe to be lagging behind in the economic cycle suggests that there is still a possibility that rates will be cut even further.