Weekly € rates and comments – week commencing 27th July 2009

Last week was a quite week for sterling as it tended to trade in a narrow range against both the US$ and the €. It seems to be waiting for a catalyst to give it some momentum one way or the other. The initial estimate of 2^nd quarter gross domestic product released during the week showed a larger contraction than expected but was a vast improvement on the previous quarter. This has been taken as a sign that the economy is close to the bottom of this recession. This view was also supported by the minutes from the last Bank of England meeting which highlighted that the BoE was unlikely in the short term to increase its programme of quantitative easing. The reason given was the need to properly assess the affect of the programme to date. This makes sense. The major constraint for an improvement in sterling is the level of government debt and the lack of a plan [or political will power] from the government to bring it down. Until this is resolved the upside for sterling is limited. In the middle of this week we have the release of UK mortgage approvals for June which is expected to have risen again. Otherwise it is a quiet week on the UK economic data front.

 

The € continues to hover around the €1.16/£1 mark. The economic landscape in euro land seems to be very similar to that of the US and the UK. The pace of the decline is slowing which gives the feeling that we are close to the bottom. This is supported by a the rise in the purchasing managers survey in the manufacturing and services sector which both increased in July to the 45-46 level. Still less than the magic 50 which indicates expansion but at the very least they are going in the right direction. In the middle of this week we have German inflation/deflation figures released. Will be very interesting to see if the German economy is now "suffering" from deflation.

 

Weekly € rates and comments – week commencing 20th July 2009

Sterling continued on what has been a frustrating and rather uneventful past fortnight and traded in a relatively narrow range against most major currencies including the US$ and the euro. UK Inflation data at the start of the week indicated only what the Bank of England (BoE) has told us to expect over recent months with the target of 2% being undershot marginally. However, a steep rise in unemployment over the month of June kept sterling under pressure throughout the middle of the week with little else in terms of significant market data releases later on in the week. On Friday the International Monetary Fund (IMF) compounded matters for sterling with comments regarding the vulnerability of the UK economy due to its dependence on the fragile and publicly supported financial sector. Green shoots are simply not enough for sterling at the moment. This week's key economic data is as follows. On Tuesday the public sector net borrowing figure for June is expected to exceed £20bn and then on Friday we have the preliminary second quarter gross product figure which is expected to show a fall of over 5%. Shocking figures but given the fallout over the last 12 months it is very difficult to surprise anyone now.  The only positive is thought to be the release of June figures for house purchase loans which is expected to show a significant increase.

 

 The Eurozone produced very little significant market data this week other than an inflation report which was much in line with expectation. The euro currently sits at €1.160/£1 inter bank. However, in this quiet week the euro also benefited from the rise in equity markets worldwide and made modest gains against the US$ and sterling. Industrial output figures for the Eurozone demonstrated a marginal increase on the previous month but there are more noticeable signs of a sustained down-turn for the rest of the year and most of 2010 when studied more broadly. This week we have producer prices, purchasing managers indices and the IFO business climate index for Germany released. Given its status as the world's greatest exporter they will make for interesting reading.

Weekly € rates and comments – week commencing 13th July 2009

Sterling fell against most currencies during last week. After Thursday's meeting at the Bank of England (BoE) brief signs of a fight-back were seen as sterling rallied sharply against most major currencies but this only proved to be a blip as rates fell again on Friday. Sterling has continued to fall at the start of this week. The BoE's decision to keep interest rates on hold was of no surprise to the markets. However the surprise was the BoE's decision not to increase the amount of funds available from the £125bn already allocated for their programme of quantitative easing. The reason for this is they need some feedback on what affect the programme has had to date. This week they will get some feedback as we have a raft of economic data out including inflation data tomorrow and on Wednesday unemployment figures. Today we see some data on UK retail sales. I suspect sterling will continue to be under pressure given the very high levels of UK government debt and the lack of any clear and concise plan on how to bring it down.  

 

The € sits at €1.151/£1 inter bank. Significant Eurozone GDP figures last week demonstrated a contraction within the euro economy for the fourth consecutive quarter. However, as the figures were really only as bad as expected, the news of an improvement in German factory for June orders helped to support the euro and maintain its recent positive trend against the pound. A forecast last week from the IMF suggested that any upturn in Eurozone activity over the coming year will be very moderate and gradual. This fits with the position of those trying not to be carried away in looking for the end of the current down-turn and to for now just be satisfied that the rate of the downturn is finally easing. This week we have inflation data for the Euro zone. We also have surveys from Germany on economic and business confidence which should make for interesting reading.

 

Weekly € rates and comments – week commencing 6th July 2009

Last week was a frustrating week for sterling. Monday started positively with the pound making marginal gains on most major currencies thanks to surprisingly positive figures regarding UK house prices. However, following Tuesday's much worse-than-expected UK GDP data which showed the largest contraction in the UK economy for over 50 years, the pound started a downward trend which lasted through the week against the US$. Risk aversion played some part in the large losses for sterling as the positive sentiment that had been growing over the last ten or so weeks fell away and reminded us all that we are far from seeing the end of the recession or the economic problems associated with it. This week we have a range of UK economic data with May industrial production and manufacturing production figures being released on Wednesday and on Thursday we will hear again from the Bank of England after their meeting on interest rates. Once again the expectation is for no change on interest rates but as with recent months it will be the comments from the members of the Monetary Policy Committee and the market reaction to their very cautious tone that may put sterling on the back foot once again.

 

 

The main focus for the Eurozone last week was the European Central Bank's (ECB) decision on interest rates with the outcome a much expected hold at current levels. The accompanying statements were also familiar to recent months' meetings with little sign that policy will take any sudden change of direction. The ECB's outlook for Europe seems to be consistent with recent views that contraction in the Euro-economy will continue throughout 2009 and potentially well into the second half of 2010 seemingly opting for a slow and steady reaction to the rate of decline in productivity. Euro-zone data out this week includes finalised first quarter euro zone GDP figures and German data on trade and inflation. Again steady improvement is expected.