Euro Exchange Rate and Comments

noreply@blogger.com (Charles Purdy) — Mon, 04 Jan 2010 09:31:00 +0000

At the start of last week, sterling performed poorly due to a rather gloomy outlook going into the New Year over concerns over the UK economy and rising public debt. However, UK economic data came in better than expected during the week as the Nationwide Building Society announced that the average house price has increased by 0.4% compared with November. This was more than analysts expected and as a result indicates that the UK may be starting to pull out of the longest recession on record, as this is the largest rise in house prices for 2 years. Whilst this certainly doesn't spell the end to the UK's troubles, it is a welcome piece of positive news that has been noticeably absent over the last few months.

This news prompted a sterling rally against the US$ and the Euro as many analysts said what we have all been thinking for a while – that sterling is far too undervalued against those currencies. The next major event on the horizon for sterling is the Bank of England meeting on the 7th January where all eyes will be glued on the policy report to see when the Bank is likely to scale back the programme of quantitative easing – any sign of this and we will see strengthening of the pound.

The € sits at €1.127 inter bank having lost ground against sterling during the course of last week. This poor performance against sterling was as a result of data released that showed that loans to households and companies had fallen for a third straight year and clearly demonstrates the fragility still prevalent in the Eurozone recovery. Whilst Europe's economy emerged from recession in the third quarter, this data shows that the banks are still reluctant to lend despite being pumped full of cash by the European Central Bank and suggests that a return to sustained growth and recovery may take longer than was first envisaged.

For more information on the euro or to request a quote, go to: http://www.smartcurrencyexchange.com/euro_exchange_rate.aspx

Weekly € rates and comments – week commencing 21st December 2009

noreply@blogger.com (Charles Purdy) — Mon, 21 Dec 2009 10:46:00 +0000

Sterling had another mixed week last week. It gained a bit of ground against the € and lost a bit of ground against the US$. UK economic data released was variable with employment data surprising to the upside and November retails sales to the downside. We are now in the final throes to Christmas, a key trading period for retail worldwide and especially in the UK. The expectation is that retail sales will be ahead of last year and this is very important for the UK retail industry which has had significant problems this year and key to showing that the consumer is recovering from a very tough year. I think most of us will be looking forward to putting 2009 behind us and a much more productive 2010. This week we have the release of updated third quarter gross domestic product figures which are expected to show us still in recession but closer to being out of it that the preliminary figures first showed. This would be helpful for sterling showing that we aren't lagging the rest of the world as badly as first shown.

During the week we had a range of poor set of economic data out of the euro zone. This made the markets realise that the euro zones economic problems were far from over. One set of data showed that after five months of expansion industrial production fell in October by 0.6%. Then a survey of German business confidence came in lower than expected which was the third monthly fall in a row and further concerns are being raised with regard to the banks in the euro zone and the possibility of further bad debts and the need to raise additional capital. So a distinct wind change for the euro which has lost 5 cents plus from its recent high against the US$.

Weekly € rates and comments – week commencing 14th December 2009

noreply@blogger.com (Charles Purdy) — Mon, 14 Dec 2009 08:17:00 +0000

Sterling had a mixed week last week losing ground against most currencies during the course of the week but regaining a bit of ground on Friday. The Chancellor held his pre-budget report mid week which seemed to be lots of smoke and mirrors but little content. He noted that the UK economy will contract by 4.75% this year which is more than originally forecast and as such will increase the governments funding requirements which is already mind boggling huge. He announced that public sector pay increases would be capped, that national insurance would be increased and that banks would incur a "special" bonus tax. But the detail on how the government was going to reduce their spend and reduce the tax burden was sadly missing and with a general election mandatory in the first half of next year the government is likely keep on to prevaricating. The Bank of England met and announced that they were keeping interest rates on hold and not increasing the programme of quantitative easing. This week we have inflation data and retails sales figures for November and unemployment data for October. The expectation is for the data to show stability in unemployment and small increases in consumer confidence.

The €, which sits at €1.108/£1 inter bank, lost a bit of ground following the down grade in the government debt for Greece but the loss was not as much as it might have been six months ago as the market seems to be more discerning and less worried about the dynamics between the different countries in the Euro zone. We also saw industrial output data for October for France and Germany come in under expectations which raises worries about the third quarter growth continuing into the final quarter. Overall production data is announced for the euro zone this week and is expected to mirror the decline as noted above for Germany and France. The ECB also highlighted that although they were starting to withdraw liquidity they would monitor this carefully and that interest rates like elsewhere were to be kept low for a while yet as there are still major problems to be dealt with in the euro zone

Weekly € rates and comments – week commencing 7th December 2009

noreply@blogger.com (Charles Purdy) — Mon, 07 Dec 2009 10:33:00 +0000

UK economic news was limited last week and came in close to expectations. This meant that sterling tended to move based on news/sentiment from elsewhere. Against the euro and the US$ sterling continues to move in a narrow range between its highs and lows and it is a case of taking advantage when you see an appropriate level for your requirements. We are now in the heart of the Christmas retail period and it will be interesting to see how resilient the UK shopper is. Initial indications from John Lewis were positive but you do wonder if this will be mirrored elsewhere. This week we have the pre budget review by the Chancellor. The news has been full of how our beloved bankers are going to be taxed to the hilt but this is a side show. The key will be how the Chancellor with the twin problems of an up and coming election and the need to bring back government spending into line with its tax income. We also have the Bank of England meeting this week but this is not expected to result in anything unusual as interest rates and their quantitative easing programme are expected to be kept on hold.

The € sits at €1.105/£1 inter bank. The European Central Bank met last Thursday and did as expected. They kept interest rates on hold and they announced the withdrawal of the dates for their short term funding facilities with this months 12 month offer being the last of this type and the 6 month offer in March 2010 being the last of this type. So the ECB has been much more effective than the Bank of England in detailing clearly how they will remove their equivalent of the BoE's quantitative easing programme. The euro initially benefited from this clarity gaining ground against sterling and pushing through US$1.50/€1 against the US$. However Friday's US non farm payrolls [effectively their unemployment figures] quickly reversed these gains. This week we have German industrial production data which is expected to show continued growth as the European economy as a whole recovers from recession.

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

noreply@blogger.com (Charles Purdy) — Mon, 30 Nov 2009 13:45:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 23 Nov 2009 10:52:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 16 Nov 2009 08:06:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 09 Nov 2009 08:16:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 02 Nov 2009 11:31:00 +0000

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.

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

noreply@blogger.com (Charles Purdy) — Mon, 26 Oct 2009 09:18:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 19 Oct 2009 08:02:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 12 Oct 2009 09:11:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 05 Oct 2009 06:56:00 +0000

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.

Weekly € rates and comments – week commencing 28th September 2009

noreply@blogger.com (Charles Purdy) — Mon, 28 Sep 2009 09:54:00 +0000

Last week got off to a quiet start with the markets waiting for the minutes of the last Bank of England meeting which were released on Wednesday. The minutes contained no surprises. The committee members agreed as one to keep the level of quantitative easing at current levels [£175bn] and there was no mention of reducing the interest rates at which the BoE paid on deposits held with it by the banks. Then Mervyn King the Governor of the Bank of England seemed to indicate he welcomed a weak sterling as it would boost exports. One of the problems with this logic is that it assumes we have things we can export which given the state of UK industry makes me wonder. It also assumes that other countries want to or have the capability to buy our products which given the credit crunch is worldwide may be a wrong assumption. One theory that I have seen for the Governors need to undermine sterling is that it is one of the few controls he has at his disposal to hit the BoE's inflation target of 2% by increasing the cost of imports. This could well be the case but the problem is that once a currency starts to weaken it is very difficult for a central bank to stop the rot. Limited UK economic data out this week. During the week we have some housing data with Augusts mortgage approvals and Septembers house prices surveys from the Halifax and the Nationwide. On Thursday we have the purchasing managers index which is expected to show a slight improvement

The euro, which sits at €1.085/£1 inter bank, continues to be flavour of the week/month/year. Business confidence in Germany continued its upward trend albeit slightly below those predicted by the analysts. As Germany is a key driver of the euro zone economy this is positive for the euro zone. This weekend we had the German elections and Chancellor Angela Merkel improved her majority. Some market commentators are predicting the euro to approach parity with sterling by the year end [i.e. €1=£1] whereas some believe sterling to be undervalued against the euro and could be much higher by the year end. However sentiment at this moment in time is with the euro and as such I suspect the upside for sterling is limited with the parity having a higher probability. This week we have euro land unemployment data which is expected to increase to 9.6% but with a slowing rate of increase. The forecast is for 10% by year end. We also have inflation data which is expected to stick at -0.7%. Eurozone consumer confidence is expected to increase slightly but is in negative territory.

Weekly € rates and comments – week commencing 21st September 2009

noreply@blogger.com (Charles Purdy) — Mon, 21 Sep 2009 10:47:00 +0000

Concerns regarding the health of the UK financial sector and the 'unconventional' monetary policy of the Bank of England re. quantitative easing continued to weigh heavily on sterling last week and its value against all major currencies suffered. Mervyn King, Governor of the Bank of England (BoE), is approaching pantomime villain status, as far as sterling investors are concerned, as his ability to talk-down the UK economy and unwillingness to offer support to sterling's value continues to drain confidence and depreciate the pound. The 'double dip' recession that some economists have warned of seems to be materialising and the rally seen during the early summer months has proved to be something of a false dawn. A significant report from one of the major European banks published last week raised the possibility of the £/€ exchange rate approaching parity [£1=€1] towards the end of the year, which was where we were at the start of the year. One positive is that the UK appears to be on course for a return to growth in the third quarter of this year. On Wednesday of this week we have the minutes of the Bank of England released which will be carefully analysed by the market, especially given the surprises contained in last months minutes.

The euro, which sits at €1.102/£1 inter bank, continued to advance against the ailing pound and continues to surge against the US$, as it has consistently done since March of this year. Flattered more by the depreciation of other currencies rather than by any particularly positive news in the Eurozone, the euro is in the ascendancy.. There seems to be little chance of seeing any increase in official interest rates from the European Central Bank but with few other central banks looking likely to raise rates either and the European equity market rising steadily the euro is likely to maintain its ascendancy for quite a while This week we see euro zone data for both the services and manufacturing sectors which are expected to show the euro zone move into expansive territory in both these areas.

Weekly € rates and comments – week commencing 14th September 2009

noreply@blogger.com (Charles Purdy) — Mon, 14 Sep 2009 07:26:00 +0000

Sterling had a better second half to last week following the Bank of England meeting on Thursday. The market was nervous following August's meeting when they were surprised by the BoE increasing their programme of quantitative easing by £50bn. This surprise was then compounded when the minutes of the meeting were released and it was noted that the Governor of the BoE had voted for a £75bn increase rather than £50bn. So when the BoE announcement was released Thursday lunchtime and there had been no change to UK interest rates and no increase in the quantitative easing programme, sterling regained lost ground. Strong UK industrial production figures released last Tuesday probably means that the UK economy expanded in the three months to the end of August, the first increase for over a year. This week we have the following UK data for August; inflation which is expected to show a reduction to 1.4%, unemployment which is expected to show an increase to 8% and UK retail sales which are expected to increase by 0.4%

The euro which sits at €1.139/£1 as I write has been the main beneficiary of the US$ weakness. The European Central Bank has been successful in maintaining liquidity and keeping interest rates low in an efficient manner by having a wide range of different funding mechanisms that are easy to access. This is in stark contracts to the UK and the programme of quantitative easing. Also the eurozone as a whole is emerging from recession with Germany seeming to lead the way with German industrial production data for July showing continued improvement. But these figures show an 18% fall over the prior year which just shows how big the hole is that has been dug and how it will take a long time to fill this spare capacity. This week we have a survey of German economic sentiment which is expected to show continued improvement being helped by an improvement in confidence in export-oriented sectors.

Weekly € rates and comments – week commencing 7th September 2009

noreply@blogger.com (Charles Purdy) — Mon, 07 Sep 2009 12:10:00 +0000

Last week was a better week for sterling gaining against most currencies. There wasn't a whole lot of economic data out. The purchasing manager's index for manufacturing fell from the prior month whereas the same survey for the services sector was positive and expanding at a faster rate than forecast. These surveys together with improved business expectations and labour shedding beginning to slow has led to hopes rising that the UK economy could return to growth in the third quarter. But what of this week. The Bank of England hold their next meeting. The outcome from the last BoE meeting sent sterling into fast reverse and sterling ended up being the worse performing currency in August. The expectation is for interest rates to be kept on hold and no increase in the quantitative easing programme and hopefully we won't have any surprises. We also have UK industrial production for July released which are expected to show an improvement over the previous month but a fall of 10% over the prior year.

The euro sits at €1.142/£1 inter bank.. The European Central Bank met last week and kept euro interest rates on hold which was expected. The accompanying announcement by the ECB president highlighted that the eurozone faced a very gradual recovery and that it was too soon to even consider raising interest rates. This statement undermined the euro. Otherwise as previously reported the eurozone as a whole is emerging from recession with Germany seeming to lead the way with German industrial production data for July being released this week with the expectation being for an improvement on the June figures. But these figures will show an 18% fall over the prior year which just shows how big the hole is that has been dug and how it will take a long time to fill this spare capacity.

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

noreply@blogger.com (Charles Purdy) — Tue, 01 Sep 2009 08:10:00 +0000

Sterling, which has had a bad August, lost further ground last week as the fallout from the minutes of the Bank of England's (BoE) last meeting highlighting their intention to expand quantitive easing whatever the affect on sterling continued to rumble on. A very marginal improvement in UK GDP figures last Friday did nothing to support sterling having already lost roughly 4% against the euro and the US$ in the past 4 weeks. Given that the BoE are not due to meet again until the 10^th of September and very little significant UK data due out next week, sterling may well find itself in this lower trading range until there is a new development or perhaps a change of strategy from the BoE. However, amongst all this gloom the expectation for the UK to return to growth during quarter 3 of 2009 is positive and brave and unpopular decisions are often needed at times of crisis.

Confidence within the Eurozone is definitely on the up for having seen France and Germany leave recession by reports released in recent days. The euro sits at €1.139/£1 inter bank. Specific information last week regarding German inflation which was slightly better than expected helped the euro to extend the previous week's gains against sterling and close the week up against the US$ also. However, as with the UK and the US, inflation is expected to remain under the target of 2% and so any chance of seeing a hike in interest rates from the European Central Bank seems very unlikely before the end of the year. This week we have Eurozone unemployment figures and again it will be interesting to see how this lagging indicator is faring.

Weekly € rates and comments – week commencing 24th August 2009

noreply@blogger.com (Charles Purdy) — Mon, 24 Aug 2009 09:30:00 +0000

With few significant economic data releases during last week and a tentative air in the markets at present sterling merely continued in its downward trajectory, making marginal losses against most major currencies. However, a slight increase in risk-appetite and business confidence globally led to gains against the US$ as investors fled their safe-haven assets. The main focus of the economic week for the UK was this month's Bank of England's meeting minutes released on Wednesday. In the report we learnt that Mervin King (the Bank's governor) and two of the other eight members' wishes to immediately expand the 'asset purchase scheme' and inject further liquidity into the UK economy. This news instantly devalued sterling on the markets and added speculation that the governor's plans may well be supported by additional members next month as all have supported the notion. This week will see second quarter UK GDP figures, another major indicator for the current health of the UK economy.

There was very little significant eurozone economic data last week but the euro, currently at €1.151/£1, still buoyed by the suggestions in the previous week that France and Germany were essentially leaving recession, enjoyed a positive run against most currencies and neared a one month high against sterling on Friday. A positive trend in the results of the European PMI index since February, which is used as a strong indicator for future business activity, has been a major plus for the euro in recent months. If euro inflation figures due this week are as positive the euro may well improve on this week's good performance.

Weekly € rates and comments – week commencing 17th August 2009

noreply@blogger.com (Charles Purdy) — Mon, 17 Aug 2009 09:09:00 +0000

Sterling lost ground against most currencies during the course of last week. On Wednesday we had the Bank of England's Quarterly Information Report. This gave some background as to why the BoE had increased the amount of quantitative easing to £175bn, a major factor behind sterling's recent fall. "The UK recession was deeper than originally thought which means that spare capacity is high. Even though a range of economic indicators are forecasting positive growth this spare capacity will be a drag resulting in UK interest rates being kept low for longer than the markets were expecting." The BoE continues to proffer the long hard road to recovery for the UK economy. This point is backed up by the International Monetary Fund who has long said that of the major economies the UK will suffer the most given its dependence on the finance sector. Overall sterling was trading in a narrow range against the € and US$ and is likely to do so until there is some catalyst to push it one way or the other.

The euro, currently at €1.157/£1, and the Euro Zone had the best of it last week with better than forecast growth for the second quarter and two of its major economies, Germany and France, even managed to show positive growth. This was a surprise as business confidence in both the manufacturing and service sectors lags that in the UK. However the expectation is for positive growth from the Euro Zone as a whole in the third quarter.

Weekly € rates and comments – week commencing 10th August 2009

noreply@blogger.com (Charles Purdy) — Mon, 10 Aug 2009 09:35:00 +0000

Last week all started positively for sterling with the purchasing manager indices for both manufacturing and services showing improvement and even indicating expansion as the readings headed over 50. As a result sterling strengthened against most currencies. Come Thursday mid-day it all came to a grinding halt and sterling went into fast reverse. The reason for this was the announcement from the Bank of England that it was going to increase the amount of funds for its quantitative easing programme by £50bn. This came as a complete surprise as the BoE had given the impression that it was likely to keep the programme on hold and if it did continue it would stick within the agreed government limit of £150bn. The increase of £50bn takes the full amount to £175bn. Also the positive economic data that has been released over the last few weeks increased confidence that the worst of the recession was over but this action by the BoE [with their access to more detailed information] indicates that they believe this not to be the case. In fact they have said that the recession was deeper than first thought which is believable as I think a lot of people are still in denial and the recession has along way to run. As I have noted previously it should not be assumed sterling will continue to appreciate as its problems are very serious. In fact the International Monetary Fund has stated that on a purchasing power parity basis the correct rate for sterling would be US$1.53/£1. This week we have growth and inflation data from the BoE which should go someway to understanding the reason for their increase in quantitative easing. We also have updated unemployment figures which are set to increase further. These all happens on Wednesday so expect some volatility leading up to this..

The € continues just above the €1.17/£1 rate. The European Central Bank met last week and kept euro land interest rates on hold. They are maintaining their "steady as she goes" approach even though some would argue that they need to do a lot more. I suspect what people forget is that the ECB has been very clever in making liquidity available to the banks through their secure lending schemes. In the last one they made available over €400bn which must be helping maintain the banks liquidity and ability to lend. Still there are problems that need to be addressed given the diversity of the € countries but I do get the feeling when I watch the ECB Chairman talk that he has a much better understanding of what is happening and what to do than our beloved Chancellor. The Euro zone release preliminary gross domestic product data on Wednesday and will be scrutinized to see the extent to which activity has stabilised in the second quarter.

Weekly € rates and comments – week commencing 3rd August 2009

noreply@blogger.com (Charles Purdy) — Mon, 03 Aug 2009 07:04:00 +0000

Sterling had a goodish week gaining ground against most currencies. Confidence seems to be returning to the economy. The UK Purchasing Managers Index for both services and manufacturing are at or are fast approaching 50. This index is viewed as being in expansion when at 50 and above and both indices have been moving strongly in the right direction over the last few months. This week we get the figures for July and the expectation is for continued improvement. The rate of decline in the UK economy is also moving in the right direction hitting 0.8% for the second quarter which was a significant improvement over the first quarter's decline of 2.5%. Interest rates are going to be kept at their current low levels for the medium term and until unemployment begins to fall. The major problem for sterling is the level of UK government debt and until there is a believable plan to bring it down the upside for sterling is limited. This week we have the Bank of England. The expectation is for not much action but for some feedback on how they view the recovery to be progressing so there is likely to be some volatility on Thursday.

Euro land still seems to be lagging the US and the UK in its economic recovery and the Euro is hovering around €1.17/£1 inter bank. Euro land reacted more slowly in addressing the key problems and also has a wide range of different economies to try and manage which is far from easy. Germany suffered a larger than expected increase in unemployment last week which I think is a good indicator of the depth of the problems that exist within their industrial power base. And deflation seems to be the order of the day throughout euro land. The European Central Bank also meets this week and will be questioned on how there programme of buying covered bonds is going and whether or not this is working. Given that it only started in July it is probably too early to tell.

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

noreply@blogger.com (Charles Purdy) — Mon, 27 Jul 2009 08:25:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 20 Jul 2009 08:57:00 +0000

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

noreply@blogger.com (Charles Purdy) — Mon, 13 Jul 2009 10:39:00 +0000

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.