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

Some ups and downs for sterling last week. We had a slight revision upwards of the growth figures for the UK economy in the third quarter. But instead of growth we were still seeing the UK economy contract. The belief is that we will see the economy grow in the current quarter and the Bank of England has forecast growth of 2.2% in 2010 and 4.1% in 2011. But as highlighted by the Chairman of the BoE this is off a low base and the current recovery was not particularly strong and is subject to some profound challenges ongoing. And it has to be remembered that the BoE will at some point in time have to raise UK interest rates and have to sell the bonds that it has bought as part of its quantitative easing programme back to the market. But given the current problems this will not be for quite a while. This week we have the release of Novembers purchasing indices for both manufacturing and services and the expectation is for an increase.

 

The euro zone continues to see its economy recover and the euro sits at €1.098/£1 inter bank. Both the purchasing managers' indices for manufacturing and services for the euro zone continue to increase and are running well ahead of the level seen in the third quarter. Sterling lost value on the back of the problems in Dubai and the increase in risk aversion. But the €/£ exchange rate continues to move in a fairly narrow arrange so we wait to see a clear direction. This week we have the release of Novembers purchasing indices for both manufacturing and services and the expectation is for an increase. We also have the European Central Bank meeting and the expectation is that interest rates will be kept on hold, that they upgrade there growth figures for 2010 and that the withdrawal of the one year financing option that was brought in as an emergency lending facility.

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

Sterling is moving in a fairly narrow range against a wide range of currencies. It is the speed of movement between the extremes of this narrow range which makes it difficult to assess when best to do a transaction. The key UK releases of last week were firstly the Bank of England minutes and secondly the level of government borrowing for October. The BoE minutes identified that 7 of the 9 members of the BoE committee voted for an increase in the quantitative easing programme by £25bn to £200bn. The expectation now is that any further increase, if any, will probably have to wait until February 2010. The other point discussed by the BoE was reducing the rate at which the BoE pays interest on funds deposited with it but they decided against this. The market view is that this is quantitative easing by the back door so became slightly disconcerted they even discussed it which is always sterling negative. The level of government borrowings increase in October exceeded £11bn. Just shows the extent of the problems facing the government. Although there was a lack of positive news last week sterling didn't crumple. This week there is a paucity of UK data released. We will have some housing price data released and an update to the preliminary third quarter figures. The preliminary figures on growth surprised to the downside and showed we were still in recession. The expectation is a slight positive revision but not enough to move us into growth.

 

The euro continues to be strong against most currencies and sits at €1.107/£1 inter bank. . The European Central Bank sees the euro zone economy to be on the up and is expected to increase its growth forecasts for the euro zone for 2010 to be released in December. But they know they have to be ever vigilant. Inflation seems to be increasing but will take quite a while to reach the targeted level of 2%. This week we have the data released which includes data on manufacturing and services to show a continued improvement in business and consumer confidence.

 

 

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

Sterling had a mixed week last week, holding its own against the €, gaining against the US$ and losing ground against the commodity backed currencies. Mid week the Bank of England released its quarterly inflation report which showed that inflation was unlikely to reach the target rate of 2% for a number of years. The report did show that the BoE was expecting an improved growth in the UK economy over the coming years than previously forecast. The overall reaction of the market was sterling negative especially when the Governor of the BoE decided to comment. He highlighted that the major concern remained the spare capacity that exits in industry and the labour markets. But by the end of the week sterling had managed to reclaim lost ground against the € and the US$. This week we have the release of retail and inflation data for October. Retail sales are expected to show a modest increase and inflation an increase and continue to be over the 1% level on the back of increased food and energy prices.

 

The euro sits at €1.117/£1 inter bank. Last week we had the release of growth figures for the euro zone. Overall there was growth which was the first quarter's growth after 5 quarters of decline. Germany, France and Italy showed growth whereas Spain continues to decline. And I would bet we see the same trend in the quarter we are in as we all know how Spain became very dependent on the building industry which has ground to a halt. The European Central Bank still views the strong euro as a worry and as such will be keeping interest rates low for a while. This week we have the release of the inflation figures for October for the euro zone which is expected to show a slight fall over the last year.

 

 

 

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

Sterling held its own last week as the week revolved around the meetings of the various central banks. In the UK the Bank of England kept interest rates on hold which was as expected. But the BoE did increase their programme of quantitative easing by £25bn to £200bn. From past experience this should have led to sterling weakening across the board. But two factors seemed to benefit sterling. The first one was the increase was less than some had forecast which the market took as a positive. The second factor was the BoE emphasised that the funds would be made available at a slower rate than those previously. This again was viewed as a positive. So has sterling turned the corner? That may be wishful thinking but at least the last two weeks have on balance been positive which is a start. This week we have the BoE's inflation report which will give the data behind their decision on quantitative easing and will allow the market to try and look into the future.

 

The euro sits at €1.120/£1 inter bank. The European Central Bank kept the euro interest rates on hold last week which was expected. Their sentiments were very similar to the other central banks in that it was going to be a long road to recovery. The ECB also stated that they would keep there emergency liquidity provisions going but were very conscious that they had to be curtailed on a timely basis once the recovery was gathering pace. The strength of the euro is still causing problems for exports and this is something the ECB is particularly worried about as they see it as potentially choking any recovery before it really gets going. This week trade and industrial production data for September is released. We also have released the gross domestic product figures for September. The data should show that euro land is emerging from the recession and beginning to grow.

 

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

Sterling had a good week gaining ground against most other currencies. A few reasons for this. Firstly a recovery from what is viewed as an over reaction by the market to poor UK gross domestic figures on the previous Friday. Secondly the UK data last week was reasonably positive with increasing house prices and improving consumer confidence. This week we have the Bank of England meeting. The market will await with interest their announcement on the quantitative easing programme and whether or not they are going to increase the total amount from £175bn. Last time they increased the amount it was very negative for sterling and common sense would say the same would happen this time, although it has to be remembered that common sense doesn't always apply in the currency markets, especially as other countries such as the US are looking to stop their equivalent programmes. So we wait to see what happens on Thursday.

 

The euro still holds favour when compared to sterling and the US$ and certainly the European Central Bank has been highly effective in adding liquidity to the market. It currently sits at €1.1076/£1 inter bank. However the strong euro is hurting the euro land economies especially exporters. This week the European Central Bank meets and the expectations are for interest rates to be kept on hold. What will be interesting is seeing what they announcement on interest rates. The markets have always though they would hold interest rates for a shorter period than the UK and the US but market rumours are beginning to circulate as to whether or not this will be the case. If the ECB come out and indicate that it will be for as long a period as others then we could see some weakness form the euro.