Weekly € rates and comments – week commencing 26th January 2009

In another poor week for economic data sterling fell across the board as concerns for the health of the UK financial sector and the depth of the current down-turn persisted. On Monday the biggest names in British high-street banking all announced record losses. RBS share price fell approximately 60%. The newly proposed bail-out plan put forward by the UK government at the start of the week was intended to encourage the major banks to start lending again having seen little improvement in credit availability since interest rates had been slashed to historic lows. However, the initial reception of the package was clearly negative and confidence in UK business fell further. Remaining under pressure later in the week due to an increase in UK unemployment as well as evidence of the economy contracting 1.5% in the last quarter of 2008, sterling dropped to near record low levels against the euro and its lowest price against the US$ in almost 30 years. No respite for sterling.

 

Marginally better-than-expected business confidence data was one of the only highlights in a quiet week for significant Eurozone economic data. Despite positive gains against sterling the euro, currently at 1.058/£1, fell approximately 4% against the US$ over the course of  last week. Competing European exporters are concerned with the unfair advantage that UK exporters have thanks to sterling's current weakness and this will apparently be a topic for debate in the next G7 meeting.

Weekly € rates and comments – week commencing 19th January 2009

Following record week-on-week gains against the euro in the previous week, sterling had a steady week ending only marginally down against the euro on Friday. Persistently poor domestic data reduced sterling's gains during last week. The growing UK trade deficit, weaker-than-expected retail sales and more high-street names going into administration will have limited sterling's chances of strengthening against other major currencies.

 

The big news in the European markets last week was the cut of 0.5% in euro interest rates by the European Central Bank (ECB) down to 2% on Thursday. As the likelihood of this cut increased during the week, the euro, currently at 1.102/£1, lost substantial ground against most major currencies and ended the week significantly lower against the US$. It was perhaps for this reason that JC Trichet, the president of the ECB, stated that future cuts to interest rates will not be considered for next month's ECB meeting. The outlook for Europe has become substantially bleaker as there is a stronger realisation of how poor economic conditions are in several of the key member. This could be a bad year for the euro.

Weekly € rates and comments – week commencing 12th January 2009

Sterling gained against most major currencies last week with substantial gains made against the euro. The Bank of England's (BoE) much expected cut of 0.5%, bringing UK interest rates down to an all-time record low of 1.5% had already been factored in and did nothing to harm sterling's positive start to the week. It will be interesting to see if sterling can maintain the momentum of this week in the coming weeks. The increasing speculation towards European interest rates being cut by the European Central Bank saw sterling rise approximately by 6% by the time the BoE had announced their cut. So now the onus has shifted to next week's decision in Europe to see what the trend between sterling/euro might be and whether the effects of the credit crunch in the Eurozone will finally level the playing field for sterling.

 

European reports and estimates for inflation have weighed heavily on the euro last week. Growing expectations of future interest rate cuts in Europe, with the next scheduled meeting on Thursday, will hopefully be welcomed as good news for people looking to buy euros from sterling in the coming months. Economic data releases are persistently poor and the unavoidable effects of the credit crunch seem to be finally chipping away against the resilient euro.

Weekly € rates and comments – week commencing 5th January 2009

Due to the holiday season, there was very little in terms of market data out last week. However sterling did stumble to yet another record low against the euro early on before rallying by about 2% on Wednesday back up to the previous week's levels. The Nationwide Building Society announced that as well as house prices having fallen by over 16% in 2008 that they will now be activating a clause in the contracts for their 'tracker' mortgages meaning that further cuts in interest rates will definitely not be passed on should the Bank of England lower interest rates again in the coming months. This demonstrates a clear expectation by Nationwide for interest rates to be lowered further and is likely to lead to other major players in the lending sector to follow suit. Consumer confidence has been rocked by the fall-out of the credit crisis so far but a refusal to pass on the savings on interest by the banks whom have been blamed for creating the mess will surely cause further upset.

 

The Euro, currently at 1.064/£1, was also subject to mixed market data this week but with no big surprises coming from the news there was little in terms of significant movement. French GDP figures were as expected and Retail Purchasing Manager Index figures were mildly positive. However, the important trends seem to have been set and due to the projected scale of the economic downturn ahead for Europe in 2009 it is simply the absolute weakness of sterling which flatters the euro at present.