Weekly € rates and comments – week commencing 30th March 2009

Having started last week positively, largely thanks to a better than expected inflation report., sterling's performance fell away mid week following an under-subscription of UK government bonds, the first time in seven years, on Wednesday and poorer-than-expected retail sales figures on Thursday. However, on Friday's sterling rose against the euro due to inflation issues within Europe but at the same time made losses against the US$ as quarterly UK GDP data showed a larger than expected contraction in the UK economy. The Bank of England's (BoE) monetary policy will again be brought into focus in the coming weeks as a marked increase to UK inflation could help the bank to take a less aggressive stance and put on hold plans for further quantitive easing.

 

The euro which is as €1.0737/£1 which has suffered as a result of events in European states outside of the euro adopted states, continued to falter thanks to major economic deficits and inflation pressures in member states such as Ireland and Italy. Inflation is currently running beyond acceptable levels according to criteria for membership to the single currency in some states and such pressures will surely force the ECB to take action in their meeting on interest rates this week, a cut of 0.5% the widely expected outcome. The euro is approximately 3% down against the US$ over the last week but at similar levels against sterling.

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

Having made broad losses against most major currencies in prior weeks, last week sterling continued to slide against the euro but made substantial gains against the US$. The UK unemployment figures and the minutes from the Bank of England's (BoE) last meeting on interest rates were both released on Wednesday. The minutes suggested that the BoE members would continue their 'dovish' stance on monetary policy and would look to further unconventional means of supporting the economy and liquidity, if necessary, in the months ahead. The UK unemployment figures also broke the psychological two million figure and together with the news from the BoE, sterling fell to some of its lowest levels against the euro since almost hitting parity in early January. Any upside for sterling will be limited for as long as such drastic measures from the BoE are endorsed and the IMF has also suggested that we will be the last out of the global recession.

 

The euro sits at €1.0674/£1 having benefited last week from inflation data and a business sentiment survey which both turned out more favourable than had been previously expected. With little other economic data during the week, the euro maintained a steady level against most currencies and made gains against sterling and the US$ due to the poorly received news from their respective central banks. At the end of last week the euro fell from a two-month-high against the US$ thanks to a slowdown in industrial production during January. Late on Friday, comments from the European Central Bank's (ECB) Axel Weber suggested that the ECB would strongly consider cutting euro interest rates in the coming months but also questioned the value of intentional devaluation if all other major central banks are intent on doing the same.

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

Having weakened off slightly in previous week's trading, sterling continued a downward trend against most major currencies throughout last week. Persistent concerns within the UK banking industry as well as weak economic data such as a marked fall in month-on-month industrial production kept sterling under pressure and at a low ebb sliding to a 6 week low against the euro. The Bank of England (BoE) initiated its quantitive easing measures on Wednesday which brought about little reaction on the markets and with little market data published in the latter part of the weak sterling stabilised and even recovered some lost ground. According to a broader analysis of recent data, the UK recession is still gathering momentum and points to harder times to come. However, in spite of the tough decisions and some may consider risky actions taken by the government and the BoE to limit the damage of the recession, the UK could be considered to be ahead of the curve and even tougher times will surely come to those countries and governments who have lagged behind in their responses to the global downturn. This may be of benefit to sterling in the medium term.

 

The Euro made small but steady gains against sterling and the US$ this week despite a lack of significant economic data. The recent fall in value of some of the smaller European currencies heightened speculation that the euro may well be adopted sooner than scheduled by the countries concerned and would have contributed to some of the euros strength. I also wonder if the market is positioning the euro to make another attempt on sterling euro parity. Not a huge amount of logic as to why we would see this as most believe that sterling is oversold but logic doesn't always apply. We will have to wait and see.

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

With little else in terms of other significant economic data due out, the main focus for last week was the rather predictable decision from the Bank of England on interest rates. The decision to cut by another 0.5% to set a new base rate of 0.5% did not have any immediate effect on the value of sterling as the news was so widely expected but the "promise" of quantitive easing is undermining sterling and limiting possible upside movement. This week we see the release of UK and European industrial data and UK and US trade data. Neither sets of data are expected to be good showing significant declines for the former and significant balance of payments deficits for the latter. No rays of sunshine on the horizon for the foreseeable future.

 

Eurozone GDP figures shortly preceded last week's other important European economic news of an interest rate cut by 0.5% to a new record low for the single currency. However, with the interest rate decision and the GDP figures both coming in as expected, the euro simply maintained a steady value against most major currencies including sterling and the US$. Inflation, or a lack of it, still remains a major concern for the European Central Bank as forecasts suggest that the future months will be running under the target rate of 2%. This will almost certainly lead to further cuts in euro interest rates if correct and will test the euro's resilience in the middle stretch of 2009.

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

Another false dawn for sterling started last week as news regarding the re-structuring of RBS, one of the many ailing UK banks, improved confidence in the financial sector and lead to broad gains against most major currencies. However, by close on Tuesday sentiment had turned against sterling and the UK banks thanks to reports of business investment having fallen steeply in the last quarter of 2008. Sterling fell further later in the week thanks to weak UK GDP figures that gave further evidence of a worsening recession in the UK. All of this combined with a poor reception to the government's 'Asset Protection Scheme', which will aim to protect the major banks' against £500bn of toxic debts with tax-payers' money meant that overall it was a bad week for sterling although sterling did steady on Friday and made marginal gains against the euro and the US$.

  

The euro, currently at 1.126/£1, experienced a mixed week gaining marginally on sterling but losing ground against the US$. With troubles from last week regarding the debt of eastern European states subsiding and the prospect of a cut in interest rates from the European Central Bank already felt as a certainty the lack of other news to drive the euro down allowed the single currency to stabilise. However, there is still a sense in the markets that the lack of drastic action to stimulate the stalling economy by the powers that be has left Europe further behind in the cycle of the global recession and this may lead to a prolonged euro weakness through 2009 and 2010.