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

Last week was positive week for sterling. Encouraging news regarding UK inflation and words from the Bank of England (BoE) suggesting that the economy is progressing towards the target rate of 2% helped brighten the outlook. There were also suggestions that the $50bn asset purchase plan to stimulate the UK economy may be increased to $75bn which was in some areas seen as a vote of confidence for the actions already taken by the UK government and the BoE. Gordon Brown even drew praise for leading by example in recession-proofing the stalling UK economy. Last Thursday, the US credit agency S&P downgraded the outlook on the UK economy from stable to negative which in turn caused an instant fall in value for sterling, falling approximately 1.4% against the euro and the US$ within minutes. However, sterling rallied back throughout the day and closed the week roughly 1% up on the euro and 4.5% up and the recently impervious US$. Limited economic data this week so we wait to see if sterling can continue to hold its own.

 

Euro-zone economic data was very sparse last week and so the euro had a rather uneventful time on the markets thanks to this. Losing ground against sterling, it now sits at €1.136/£1 inter bank, but making large gains against the US$, on the whole the euro closed the week marginally down against most currencies. The euro is also under pressure thanks speculation that the US credit agency S&P may well look to downgrade the outlook on the Euro-zone as they have for the UK.

Weekly € rates and comments – week commencing 18th May 2009

Even though the Bank of England pulled no punches on Wednesday of last week in describing how difficult the next 18 months were going to be and that the UK economy was far from being out of the wood, sterling gained against most currencies during the course of the last week. Sterling gained support from better than expected retails sales for April, better than expected manufacturing output for March and a UK housing market survey that came in stronger than expected. However, it is still difficult to know how the government is going to fund their massive debts over the coming year(s) especially given the increase in taxes announced in the last budget which seemed to be counter productive in encouraging inward investment and as such I would suggest looking at any strength in sterling as a buying opportunity rather than the start of a prolonged move up. On Tuesday of this week we get inflation figures which I am sure will make interesting reading. Otherwise a quiet week for economic data.

 

The € sits at €1.126/£1 as I write. The € held its own even on the back of the most appalling GDP figures released last Friday. The figures showed that euro land had contracted by 2.5% in the first quarter of this year on the back of a 1.6% contraction in the last quarter of last year. Germany leads the way with a fall in GDP in the first quarter of 4% which represents a fall of almost 7% in the last twelve months. I suspect more bad news is on the way but with so little good news elsewhere I can't see sterling making great strides against the € short term. Limited economic data to be released this coming week.

Weekly € rates and comments – week commencing 11th May 2009

At the start of last week sterling strengthened marginally against most currencies thanks to the improved confidence in the financial sector and renewed risk-appetite. The Bank of England (BoE) met on Thursday and despite rates being kept on hold at 0.5% as expected, sterling's recent gains, especially against the €, unwound within just a couple of hours. This was due to the announcement to increase the level of quantitative easing by £50bn from the current level of £75bn. This week we have on Tuesday the release UK manufacturing data and UK trade data for March. Then on Wednesday we have both the unemployment figures for April and the release of the updated growth and inflation figures from the BoE. So a busy week for UK data and we wait to see if there are any "green shoots" to support sterling and perhaps even push it to higher levels.

 

The € had a good week last week and sits at €1.115/£1. The main event of last week was the widely anticipated decision from the European Central Bank (ECB) to cut their interest rates by 0.25 to 1%. As has been the case in recent months, it was as much the accompanying statement and sentiment of the members regarding future actions that drew attention. One member described the cut as 'appropriate taking into account all available information' which has been a clue in previous statements that there will be no intended change to this rate for some time. Further action from the ECB involved the purchase of €60bn 'euro denominated covered bonds' which will aim to support the mortgage lenders. Finishing last week on the front foot the euro has simply not capitulated as many analysts had predicted would happen at the beginning of the year. However, we will see the depth of the eurozone recession on Friday when France, Germany and the other eurozone countries release gross domestic product data for the first quarter. The data is not expected to good and in fact for Germany extremely weak. So we wait to see if the € can continue to hold its own.

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

Last week was a quiet week for economic data or developments and the UK news headlines was instead dominated by events involving the potential swine-flu pandemic rather than the ongoing global recession. There have been some encouraging signs that sterling has now reached and returned from the bottom of its value on the currency markets. Prices have maintained recent improved levels despite a lack of positive market data to support any substantial upturn in the economy other than the sustained increase in manufacturing over the last 3 months. This week bares little to nothing more in terms of major economic data for sterling other than the Bank of England's monthly decision on interest rates where the broad expectation will be for another hold at 0.5%.

 

 

The euro sits at €1.127/£1 inter bank. Major Euro-zone economic data was sparse last week and the figures which were released, such as German unemployment and inflation data, were much as expected. A positive week for European equities helped to increase confidence that perhaps the worst of the down-turn is behind Europe but this may well prove to be overly-optimistic. This week we will see the European Central Bank's (ECB) monthly decision on interest rates with a cut of 0.25 % on the cards. Persistent rumours of quantitive easing as a means to stimulate parts of the stalling Euro-zone economy have kept the euro under pressure recently so any mention of this in the accompanying statement with the decision on interest rates may prove to be damaging to the euro in the short to medium term.