Weekly € rates and comments – week commencing 9th November 2009

Sterling held its own last week as the week revolved around the meetings of the various central banks. In the UK the Bank of England kept interest rates on hold which was as expected. But the BoE did increase their programme of quantitative easing by £25bn to £200bn. From past experience this should have led to sterling weakening across the board. But two factors seemed to benefit sterling. The first one was the increase was less than some had forecast which the market took as a positive. The second factor was the BoE emphasised that the funds would be made available at a slower rate than those previously. This again was viewed as a positive. So has sterling turned the corner? That may be wishful thinking but at least the last two weeks have on balance been positive which is a start. This week we have the BoE's inflation report which will give the data behind their decision on quantitative easing and will allow the market to try and look into the future.

 

The euro sits at €1.120/£1 inter bank. The European Central Bank kept the euro interest rates on hold last week which was expected. Their sentiments were very similar to the other central banks in that it was going to be a long road to recovery. The ECB also stated that they would keep there emergency liquidity provisions going but were very conscious that they had to be curtailed on a timely basis once the recovery was gathering pace. The strength of the euro is still causing problems for exports and this is something the ECB is particularly worried about as they see it as potentially choking any recovery before it really gets going. This week trade and industrial production data for September is released. We also have released the gross domestic product figures for September. The data should show that euro land is emerging from the recession and beginning to grow.