Weekly € rates and comments – week commencing 21st September 2009

Concerns regarding the health of the UK financial sector and the 'unconventional' monetary policy of the Bank of England re. quantitative easing continued to weigh heavily on sterling last week and  its value against all major currencies suffered. Mervyn King, Governor of the Bank of England (BoE), is approaching pantomime villain status, as far as sterling investors are concerned, as his ability to talk-down the UK economy and unwillingness to offer support to sterling's value continues to drain confidence and depreciate the pound. The 'double dip' recession that some economists have warned of seems to be materialising and the rally seen during the early summer months has proved to be something of a false dawn. A significant report from one of the major European banks published last week raised the possibility of the £/€ exchange rate approaching parity [£1=€1]  towards the end of the year, which was where we were at the start of the year. One positive is that the UK appears to be on course for a return to growth in the third quarter of this year. On Wednesday of this week we have the minutes of the Bank of England released which will be carefully analysed by the market, especially given the surprises contained in last months minutes.

 

 

The euro, which sits at €1.102/£1 inter bank, continued to advance against the ailing pound and continues to surge against the US$, as it has consistently done since March of this year. Flattered more by the depreciation of other currencies rather than by any particularly positive news in the Eurozone, the euro is in the ascendancy.. There seems to be little chance of seeing any increase in official interest rates from the European Central Bank but with few other central banks looking likely to raise rates either and the European equity market rising steadily the euro is likely to maintain its ascendancy for quite a while  This week we see euro zone data for both the services and manufacturing sectors which are expected to show the euro zone move into expansive territory in both these areas.