Weekly € rates and comments – week commencing 7th September 2009

Last week was a better week for sterling gaining against most currencies. There wasn't a whole lot of economic data out. The purchasing manager's index for manufacturing fell from the prior month whereas the same survey for the services sector was positive and expanding at a faster rate than forecast. These surveys together with improved business expectations and labour shedding beginning to slow has led to hopes rising that the UK economy could return to growth in the third quarter. But what of this week. The Bank of England hold their next meeting. The outcome from the last BoE meeting sent sterling into fast reverse and sterling ended up being the worse performing currency in August. The expectation is for interest rates to be kept on hold and no increase in the quantitative easing programme and hopefully we won't have any surprises. We also have UK industrial production for July released which are expected to show an improvement over the previous month but a fall of 10% over the prior year.

 

The euro sits at €1.142/£1 inter bank.. The European Central Bank met last week and kept euro interest rates on hold which was expected. The accompanying announcement by the ECB president highlighted that the eurozone faced a very gradual recovery and that it was too soon to even consider raising interest rates. This statement undermined the euro. Otherwise as previously reported the eurozone as a whole is emerging from recession with Germany seeming to lead the way with German industrial production data for July being released this week with the expectation being for an improvement on the June figures. But these figures will show an 18% fall over the prior year which just shows how big the hole is that has been dug and how it will take a long time to fill this spare capacity.