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

A difficult week for sterling last week. It started well when the minutes of the last meeting of the Bank of England's monetary policy committee showed a unanimous vote to keep their quantitative easing programme at current levels. This helped sterling gain against most currencies and at one stage sterling hit €1.11/£1. However there was a sting in the tail on Friday when the economic data showed that the UK economy had shrunk by 0.4% in the third quarter. This is the sixth quarter of contraction and highlights why the Governor of the BoE has been so cautious in his statements on the UK economy. Sterling went into immediate freefall although its net movement over the course of the week was limited given its good start to the week. Still a long road until the UK economy to turns the corner and until then sterling will have few friends. There is limited economic data out this week with mortgage lending data for September due on Thursday and some preliminary data on sales, house prices and consumer confidence released throughout the week.

 

The euro currently sits at €1.083/£1 inter bank. In Euro land economic data for last week was good with positive figures for both the Purchasing Managers and Service indices. This supports the view that we will have seen positive growth in the last quarter from the economy. Still plenty of spare capacity which will mean that we are unlikely to see inflation in the near term and as such we will see interest rates kept low for some time. This weeks data focuses on preliminary feedback of consumer and business confidence for October and some firm data for September on unemployment and  retail sales. In the short term there seems very few reasons to believe that the euro will begin to weaken.

 

Weekly € rates and comments – week commencing 19th October 2009

A better week for sterling last week. It started off badly with sterling hitting a six month low against the euro. This was on the back of the rate of inflation for September being under expectations at 1.1% [August 1.6%]. I must admit I do wonder why there is inflation rather than deflation but I suspect sterling's weakness is a significant factor increasing the cost of energy and food imports. But then sterling started to strengthen as members of the Bank of England's monetary policy committee talked up the success of their programme of quantitative easing. Firstly the impression was given that the BoE would not increase the programme in the short term and then it was highlighted that the programme had been effective in getting the economy moving. They also acknowledged the need to remove this huge stimulus before it leads to inflation exceeding the 2% target. Also economic data on house prices and unemployment were better than expected and sterling had a strong end to the week. This week we have the gross domestic product figures for the third quarter. The expectation/hope is that we will see the UK economy growing albeit only just. We also have retails sales figures out for September with an expected increase of 0.5%.

 

 

The euro, which sits at €1.090/£1, continued to advance against the US$ but as noted above lost ground against sterling. Nothing new to report on the economic data front. The European Central Bank still view the current euro interest rate as appropriate but are conscious that the euros strength is having a negative effect on exports and as such will be detrimental to euro lands ongoing recovery. This week we have a raft of economic data released including euro land producer prices, initial producing prices and industrial order information for August.

 

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

Last week was one of those weeks where a lot seemed to be happening but sterling marked time against the US$ and the €. But not when compared to the commodity backed currencies against which sterling lost significant ground. This followed the Bank of Australia raising their interest rate. The Bank of England met on Thursday. This was against a background of poor industrial data for August and a disappointing purchasing managers index for September, although the corresponding service managers index was positive. In the event the BoE kept UK interest rates on hold and made no announcement on increasing the quantitative easing programme from its current level of £175bn [they have used £162bn so far]. The moment of truth will be their next meeting in early November when they will have further information on the UK economy and its recovery and whether or not there is a need to increase the quantitative easing programme further. I suspect they will have to and this will more than likely to be sterling negative. This week on the economic data front we have UK inflation and unemployment figures. As the rest of the world experiences deflation the UK still has inflation although it is expected to fall to 1,3% the lowest rate for five years. UK inflation seems to be the result of sterling's weakness making imports more expensive.

 

The euro is still top of the pile and sits at €1.071/£1 inter bank. The European Central Bank met this week and kept interest rates on hold. However the ECB would like the euro to weaken as its strength is making exports too expensive. And as a consequence they expect the current deflation to take a while to turn to inflation. Will sterling hit parity against the euro? Very difficult to tell but there seems little UK news to turn the current trend around. There seems to be a dearth of euro land economic data this week so little data to upset the €'s current strength.

 

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

A quiet week for sterling last week. No statements from the Governor of the Bank of England or negative economic data to undermine sterling. In fact the economic news was on the whole positive with improving house prices, retail sales and industrial sentiment. However this improvement is only gradual and similar to that enjoyed being elsewhere in the world. This worried the market as it supports the view that the UK economy has stabilised but that the road to recovery is going to be slow rather than rapid. I suspect this is what most of us already knew but the stock markets were over optimistic and pulled back. As a result risk appetite fell and safe haven assets benefited. This week we have a mixture of economic data including the September purchasing managers index which is expected to show further improvement. But the markets will be nervous for sterling as we also have the next meeting of the Bank of England on Thursday. The expectation is for the BoE to keep interest rates on hold but what will worry the bank is the accompanying statement.

 

The euro sits at €1.094/£1 inter bank and continues to be the most favoured currency. Similar economic data to that of the UK and the US showed that the euro lands economies were improving gradually. The European Central Bank carried out its second funding auction last week. The first one in June ended up with the ECB lending banks over €440bn. The second auction resulted in the ECB only lending €75bn which was half of what was forecast. This indicated that liquidity in the market place was much improved and lent further support to the euro. Similar economic data to the UK is released this week with the same expectation of small gradual steps forward. The European Central Bank also meets and as per the UK interest rates are expected to be kept on hold. Anything different would be a great surprise.