Weekly € rates and comments – week commencing 29th June 2009

Sterling's recent run of form which started approximately 3 months ago has seemingly stalled, trading in a narrow range this week around €1.17/£1 against the euro and $1.64/£1 against the US$. At the start of last week sterling peaked momentarily at €1.19/£1 but has since edged down and has dampened expectations that we will see sterling back into the €1.20/£1+ region for a while at least. The Bank of England and its governor Mervin King have continued in their policy of trying to keep excitement for the recent gains by sterling and the improving sentiment domestically down by warning of the fragility still present within the UK financial sector and the negative effect of borrowing defaults in the future. A strong pound will also be likely to limit foreign investment and so there are strong signals that any substantial upside to sterling will be limited and perhaps even discouraged by the men at the top of the UK economy. A raft of UK economic data out this week with mortgage approvals, the Halifax house price index and the purchasing managers index all expected to show improvements and if correct will limit sterling's downside.

 

 

The euro has also kept relatively steady on the markets this week despite a rather massive injection of €442bn from the European Central Bank (ECB) in this week's 'one year funding' auction. An easing in the rate of contraction within the euro economy in quarter 2 of 2009 was the most positive of recent market data. The ECB's cautious, and in some minds slow, approach with its liquidity injections have been done with the luxury of seeing the reactions to similar measures by other central banks elsewhere in the world. So given sterling's recent rally, there was little damage to be expected by such a large contribution. However, these stimuli and asset purchases will take some time to filter through the markets and into the respective economies to then give any firm evidence of success.  This week we have the June flash estimate of consumer price inflation which is expected to show deflation. Quite a turnaround from the 4% inflation recorded last year. The weekend press was also full of the fact that the European banks have yet to come clean about the level of their bad debts arising from bad loans and this could be a major negative for the € in the medium term.

 

 

Weekly € rates and comments – week commencing 22nd June 2009

Sterling's upward momentum stalled last week largely due to weaker than expected UK retail sale figures as well as the detail in the Bank of England's (BoE) meeting minutes from earlier this month suggesting quantitive easing and asset purchases were still part of their plans despite the recent upturn in confidence. The BoE has also been deliberately quick in trying to put the recent surge from sterling and the improving economic data in perspective and have warned of new and persistent problems which may arise as a hangover of the rather epic down-turn of the last year. Better-than-expected inflation data and a rally in equity markets would certainly have helped sterling claw back its midweek losses and close last week within a cent of its highest value against the euro in over 6 months. This week there seems a dearth of UK economic data. Today we have various housing indices which are expected to show house prices are still falling. No surprise then but the level of the fall will be watched with interest.

 

The euro has retraced on some of its recent gains against the US$ since the start of June and is still in a downward trend against sterling. Despite no particularly negative or outstanding results in Eurozone market data the rate of contraction in the Eurozone economy has proven to be rather sharp since the start of 2009. Attention last week fell on the Eurozone banking system which is expected to face massive financial losses and prove in some terms the lagged reaction to the global economy that may keep the entire region under pressure whilst other parties eye the end of the crisis. Tomorrow we see the purchasing managers indices for the euro zone released with the expectation that the rate of contraction will have slowed rather than moving into growth.

Weekly € rates and comments – week commencing 15th June 2009

With little significant economic data last week and a quieter time for the under-fire Gordon Brown, sterling made the most of its chance to prove its recent trend was perhaps not the false dawn some had expected. Much of the focus for sterling has centred on the speculation that the decline in the UK economy is nearing or perhaps reached its end. Though several sources including the Bank of England and Chancellor Darling have warned against assuming that the recession is nearing its end, confidence surveys and economic data have reflected that conditions are still poor but not deteriorating as they had been in previous months. UK industrial production has increased marginally and the NIESR estimate of UK growth based on GDP showed a turnaround as of April with the improvements continuing through May. Further, steady improvements against the euro, which have continued at the start of this week, have lifted spirits, given the near-parity disasters at the start of the year and sterling has regained ground against the US$,  although on Monday it lost ground as risk aversion came to the fore. Today we have inflation data for the UK, the US and the Euro zone announced. All three areas are expected to show a continued decline and no increase is expected in the short to medium term given the level of spare production capacity throughout the world. UK unemployment will be released on Wednesday which is expected to show an increase.

 

Euro economic data was limited last week, with disappointing figures regarding money supply and German industrial production, and so the euro did not make any particularly large gains or losses., In spite of losses made against sterling during last week the euro managed to hold a relatively steady price against the US$. There has been some speculation as to whether the European Central Bank will look to increase interest rates but given that many expect Europe to be lagging behind in the economic cycle suggests that there is still a possibility that rates will be cut even further.

 

Weekly € rates and comments – week commencing 8th June 2009

Sterling's positive run on most major currencies was curtailed in the middle of last week as risk-aversion returned and the safe-haven USD regained lost ground from last month. The continued pressure on Gordon Brown to resign as PM, having navigated the UK economy this far through the credit crisis, has reflected poorly on sterling as any major upheaval in domestic politics could spell a reworking of current plans and delay action on matters yet to be resolved. UK economic data last week, ranging from consumer credit reports, mortgage approvals and inflation data, was no worse than expected. The Bank of England also kept interest rates on hold at 0.5% and stated that there would be no immediate expansion of the quantitive easing measures – at least for the time being. By close on Friday, sterling was roughly 2 cents down from its opening price on Monday against the US$ but 7 cents down from its peak price mid-week. Against the euro sterling managed to rally back from its midweek losses and close trading on Friday practically unchanged from Monday's levels. Sterling's weakness has continued into the start of this week as the calls for Gordon Brown to resign grow ever louder and until this uncertainty is resolved one way or the other sterling will continue to be under pressure.

 

 

The € currently sits at €1.138/£1. There were no major surprises in European market data last week nor from the European Central Bank's decision to keep their interest rates on hold. Though there was a further revision down of GDP estimates for late 2009, the euro has been broadly resilient to the suggestions and speculation that conditions will continue to deteriorate in Europe as Britain and the US begin to see the vague signs of recovery. Eurozone inflation figures and estimates continue to weigh on the euro but with little suggestion that monetary policy will change it may be some time before we see much long-term upside for the single currency.

Weekly € rates and comments – week commencing 1st June 2009

Sterling's promising rise against most currencies over the last month or so continued for most of last week. Still managing to close in positive territory on Friday against the euro, sterling's gains of approximately 15 percent against the USD since early March has given the markets a clear signal that risk appetite is back in some force and has directly leant itself to help sterling out of the mire. This week we have the Bank of England meeting on Thursday and the expectation is for no change in interest rates. There is also a raft of economic data out starting today with May's purchasing managers survey for manufacturing. The expectation is for the data to show a slow down in the rate of contraction.

 

The € is sitting at €1.152/£1 inter bank. Much of the Euro-zone economic data released last week, including a Europe-wide inflation report, was as-expected and so had little effect on the euro's value on the markets. Recent large gains against the weakened US$ have helped flatter the euro, as large losses elsewhere, such as against sterling and the Australian dollar have left the euro in the middle ground but in a downward trajectory overall. Positive performances in the equity markets have perhaps allowed the euro to avoid or ignore much of the speculation that a tougher end to 2009 awaits.  This week the European Central Bank meets on Thursday and the expectation is for interest rates to be kept on hold.