Weekly € rates and comments – week commencing 23rd February 2009

All in all last week was a quiet week for sterling with few significant events or data releases to move the markets.  Having kept within a steady range against the US$ and edging up by a couple of cents on the euro over the week, a period of stability is perhaps a positive given how volatile exchange rates have been over the last eighteen months. The positives for the UK economy were better-than-expected house price figures and retail sales. However, the Bank of England revealed in the minutes from their last meeting on interest rates a unanimous vote in favour of quantitive easing to stimulate the economy. This promise of printing more money to increase supply from the lending banks did not cause any immediate harm to sterling's value but may not be looked upon favourably should this policy be enacted in the difficult months ahead.

Major concerns regarding some of the EU's newer member states' commitment to the single currency as well as the exposure level of their banks to the global credit crisis resulted in a tough week for the euro. Reassurances offered by the German finance minister that these (mostly Eastern European) states could be bailed out by the Germans and other more developed EU members, helped alleviate these fears and limit the damage done to the euro. The Polish Zloty has been one of the previously emerging markets currencies that has suffered of late and subsequently has reached its lowest price against the euro for approximately 5 years.

Weekly € rates and comments – week commencing 16th February 2009

Sterling started last week positively largely thanks to news that Barclays Bank had posted much better than expected annual profits. However, news regarding the re-structuring of Russian corporate debt last Tuesday drove market sentiment against sterling and back into favour the safe-haven assets such as the US$ and the Japanese Yen. This in turn lead to a trading day loss for sterling of approximately 2.5% against the euro and the US$. In spite of this, figures which showed UK unemployment to have increased for the twelfth consecutive month and the Bank of England's quarterly inflation report which contained suggestions of a deep recession ahead and the potential need for quantitive easing did little to harm sterling midweek. By Friday sterling did show signs of a small rally but these were limited by news of more problems from the UK banking sector and a 40% drop in Lloyds TSB shares.

 

The €, currently at €1.114/£1, gained against sterling during the course of last week. There was little in terms of significant market data from the Eurozone until the end of the week. Figures showing a large fall in European industrial production on Thursday were compounded by Euro GDP data which showed European economies to have contracted further in the fourth quarter of 2008. Specifically, the German economy contracted by 2.1% over the same period – its largest ever quarterly fall in the modern era. This will likely encourage speculation towards a cut in interest rates of at least 0.5% when the European Central Bank next meet in March.

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

Sterling suffered a shaky start to last Monday, falling from the gains made at the end of the previous week. On Tuesday sterling was steady and on Wednesday began to climb across the board in anticipation of the Bank of England's (BOE) meeting for interest rates the next day. The much-expected cut of 0.5% to a base interest rate of 1% prompted sterling to surge positively against the euro and reach its highest value in approximately 2 months. There was little in terms of genuinely positive economic news for sterling and so the adjustment to these improved levels could be interpreted as a general sense that sterling has for too long now been under-priced against other major currencies.

 

After last month's meeting on interest rates JC Trichet, president of the European Central Bank (ECB), stated that he would not consider further cuts to European interest rates until the month of March, so adopting a less aggressive stance to monetary policy. As a result of this and other large issues plaguing the European economy, the euro fell against the pound and the US$ reaching its lowest value in two months last week and is currently at 1.147/£1. Although the European economy is thought to be behind in the cycle of the credit crunch, this apparent evidence of inaction by those in charge of steering the continent through the crisis is beginning to result in a loss of confidence in the euro's future.

Weekly € rates and comments – week commencing 2nd February 2009

Sterling had a good week. It started positively when the Chairman and CEO of Barclays Bank wrote an open letter to the market saying they were doing better than the market thought. This brought a bit of stability to the UK financial market which is a key part of the UK economy. Then the International Monetary Fund weighed in saying that of all industrialised nations the UK was likely to suffer the greatest recession due to this dependence on finance. The rest of last week showed sterling gain steadily against most currencies which seemed to stem from disquiet elsewhere rather than what was happening here. I think we are still in stormy waters for sterling, e.g. Honda start their 4 month shut down today, so I would suggest people don't get their hopes up for significant strengthening in the short term.

 

Euro land suffered the most, currently at 1.122/£1. Riots in the streets of Paris as the populous view the treatment of banks as unfair and preferential. Various countries increasing their rhetoric as to whether or not they should stick with the euro. When times are good one size can fit all. In times like these governments want/need more direct control over their monetary policy. However for euro land this is controlled centrally by the European Central Bank who have to look at the overall economy which means that Germany balances out, say Spain or Italy. So a week of weakness for the euro against sterling.