Weekly € rates and comments – week commencing 17th August 2009

Sterling lost ground against most currencies during the course of last week. On Wednesday we had the Bank of England's Quarterly Information Report. This gave some background as to why the BoE had increased the amount of quantitative easing to £175bn, a major factor behind sterling's recent fall. "The UK recession was deeper than originally thought which means that spare capacity is high. Even though a range of economic indicators are forecasting positive growth this spare capacity will be a drag resulting in UK interest rates being kept low for longer than the markets were expecting." The BoE continues to proffer the long hard road to recovery for the UK economy. This point is backed up by the International Monetary Fund who has long said that of the major economies the UK will suffer the most given its dependence on the finance sector. Overall sterling was trading in a narrow range against the € and US$ and is likely to do so until there is some catalyst to push it one way or the other.

 

The euro, currently at €1.157/£1, and the Euro Zone had the best of it last week with better than forecast growth for the second quarter and two of its major economies, Germany and France, even managed to show positive growth. This was a surprise as business confidence in both the manufacturing and service sectors lags that in the UK. However the expectation is for positive growth from the Euro Zone as a whole in the third quarter.